Dismal small trading volumes on the Dubai Mercantile Exchange's (DME) new cash-settled oil futures signal that initial resistance may be turning into a resounding failure for the new contracts.
But the oil market's heightened volatility and record-high prices are also to blame for the lack of interest, as they raise the financial cost of trading and increase regulatory scrutiny, leaving dealers wary of new contracts, traders said.
"We have not done anything with these contracts. Since liquidity is so bad, we have not found any use for them," said a trader.
August DME Brent traded an average of 113 lots since its launch on June 1, according to the latest available data, while DME cash-settled Oman fared slightly better at 129 lots a day.
But both contracts are well below the 1,884 lots a day averaged by the DME Oman physical contract during its first month of trading when it was launched a year ago.
The contracts have attracted less attention than the rival cash-settled Dubai contract, launched by InterContinentalExchange last year, which averaged a much higher 2,870 lots a day on its first month of trading, before falling into near-oblivion.
There has been deep resistance to the two financial contracts as the industry sees little need for them.
"Why would you have a new Oman contract? The DME is worried that trading in the Oman contract has peaked, but they should have thought of ways of making the contract better, rather than launch a new one," a Singapore-based trader said.
The DME can congratulate itself on having kept the DME Oman contract alive a year after its launch, a feat for a Middle East sour futures contract, after a series of failed attempts.
At the same time, around a third of all contracts traded in May led to physical delivery, threatening to transform the Dubai Mercantile Exchange into a physical – rather than futures – clearing house.