24-04-06 Oman and Gulf partner Dubai have now teamed up to sign the first ever oil futures contract in the Middle East.
The Ministry of Oil and Gas teamed up with the Dubai Mercantile Exchange (DME) after signing a memorandum of understanding back in February 2006. Now, the futures break through has been slated for offing the fourth quarter of this year, according to a joint statement from Oman and the DME.

The contract will streamline crude oil trading transactions, with possible crude oil contract users the option of either settling financially or taking physical delivery when calculating pricing schemes.
Heralding the innovative step, Nasser bin Khamis al-Jashmi, Omani Undersecretary of Oil and Gas, told, "The creation of a successful, physically linked Middle East sour crude oil futures contract is a concept we sincerely support, given our role in the pricing of Middle Eastern crude."

The partnership marks strategic forethought on the part of the bourse.
"We are building upon unprecedented regional confidence," Gary King, chief executive of the DME told. "We will be going to the market place very shortly to look to launch our next contract, which will naturally fit our sour crude oil contract and which has been strongly desired and recommended by the marketplace."

Already producing about one-half of the 12 mm barrels of Middle Eastern crude exported to Asia every day, Omani crude seemed to be the logical choice as a benchmark for a regional pricing mechanism on the DME, signalling a break from relying on standards set in the West.
The move marks a growing shift away from the West Texas Intermediate and Brent standards more commonly used, which mirror fluctuations in sweet crude, as opposed to the sour crude produced in the Middle East.

Even though the Middle East is the world's leading region in hydrocarbon production, no clear contract had yet existed for futures trading. The lack of a fluid financial pricing scheme had long frustrated traders, who were forced to lean on physical published prices of Dubai and Omani crude.
However, traders and customers based at Dubai's financial hub, the Dubai International Financial Centre have been able to trade products directly on the NYMEX and its COMEX subsidiary, thanks to their status as "recognised bodies" by the Dubai Financial Services Authority (DFSA).

NYMEX chief executive James Newsome said that NYMEX would apply for clearinghouse status to the DFSA when the DME seeks standing as an "authorised market institution". NYMEX is also a 50 % shareholder of the DME, with Tatweer, part of Crown Prince Sheikh Mohammed Al Maktoum's Dubai Holding, controlling the other half.
Noting both the burgeoning partnership between the two Gulf Cooperation Council (GCC) members as well as the project's Western connections, DME chairman Ahmad Sharaf reflected, "Together, we will seek to build on the valuable and long-standing relationship between Oman and Dubai to develop a Middle East sour crude oil futures contract that will be traded on the DME. We also firmly believe the Tatweer-NYMEX partnership is a combination of both regional and industry expertise that will help us in our goal of launching a world-class exchange in Dubai."

Yet some critics are swift to point out that Oman's current pricing policy of basing official monthly selling prices retroactively will have to be abandoned if the contract is to thrive, especially given that the sultanate produces 750,000 bpd, compared to trading host Dubai's 100,000 bpd.
Omani Oil and Gas Ministry officials have not yet publicly commented on whether or not such a move was under consideration.

In any event, the move is by and large being heralded by both traders and industry observers as a long-needed benchmark to measure pricing in this chief oil-producing region. It is also a key step towards casting an international eye towards the GCC as a financial centre and a hub for a futures exchange.
Indeed, the international futures market has never been more accommodating for such a moveby an emerging market like Oman -- both to brand itself as a capable trading partner and to dissuade qualms buzzing around the sector of dwindling national supplies.