Dubai Gold and Commodities Exchange (DGCX) will introduce two new energy contracts, Nymex traded West Texas Intermediate (WTI) light sweet crude and the London ICE Brent crude oil futures, on May 27, to be the first exchange in the Middle East to offer trading in cash-settled global energy contracts.
Malcolm Morris, CEO of DGCX, said that listing energy products would enable regional investors to easily trade in oil futures.
"We think investors in the region will opt to trade in these crude oil contracts for many reasons, mainly time and cost. They will not need to transfer funds to trade overseas because they will have access here."
He said the initiative came in the right time due to the huge liquidity in the Middle East region and the need by investors, fund managers and commercial institutions to be more involved in energies markets. Morris explained that the new products came to respond to increasing demand from members in the DGCX to introduce trading in energy.
"We have 217 members and the majority of them were demanding to expand our products beyond gold and precious metals, steel and currencies.
"So we expect that introducing global benchmarks in future oil will attract increasing investments."
He quoted Ahmed bin Sulayem, Chairman of DGCX, as saying that making the world's crude oil benchmarks available directly to the largest global oil producing region and allowing regional participants to maintain business within the Middle East has "benefits beyond measure".
"There are two main benefits for investors as they will not need to transfer their capitals to international markets to trade in oil futures as all transactions will take place in the country. Also, they will benefit from the UAE's taxation advantages, which will be far less taxation in the US or the UK," Morris added.
He also ruled out that the new products might affect efforts by Dubai Mercantile Exchange (DME) to create a new benchmark for oil futures. "This issue is the WTI and Brent benchmarks are already global benchmarks and investors are trading in these futures, so what we do is making these benchmarks available for investors in the region instead of transferring capitals to other markets."
He also predicted that the total contracts in the DGCX would range between 1.5
and two million contracts this year. "The exchange processed more than two million contracts since it start and achieved 910,000 contracts in 2007, a 65 per cent increase over results in 2006. Also the total value of these contracts reached $69 billion (Dh33bn).
"With the new products, we expect continuous increase in the number of contracts and their value."
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