Oman implements historic change to pricing of crude oil
The Sultanate of Oman’s Ministry of Oil and Gas (MOG) and the Dubai Mercantile Exchange Limited (DME) today announced that Oman will adopt forward pricing of its crude oil based on the daily settlement price of the DME’s Oman Crude Oil Futures Contract, due to start trading on launch of the Exchange. The DME, is a joint venture between the New York Mercantile Exchange, Inc. (NYMEX) and Tatweer, a wholly owned subsidiary of Dubai Holding.
The ground-breaking decision to abandon its current practice of retroactively pricing the Sultanate’s crude oil is further evidence of the Oman Government’s continuing support for price transparency.
The pricing decision will be welcomed widely by the industry and follows extensive market consultation by the joint Oman – DME working group that was instrumental in developing the Oman Crude Oil Futures Contract earlier this year. The working group consists of senior professionals from Oman’s MOG, Ministry of Finance, Petroleum Development of Oman, the New York Mercantile Exchange Inc. (NYMEX) and the DME. The working group met in Oman last week with the MOG and with DME’s senior management to discuss the Exchange’s progress, the working group’s findings and Oman’s crude oil pricing methodology.
Making the announcement, H.E.(Dr. Mohammed Hamed Al Rumhy, Minister of Oil & Gas, Oman) said: “We believe this is one of the most significant developments in the Middle Eastern oil market for years, addresses industry needs, and is entirely appropriate given Oman’s role in pricing the region’s crude oil.
“By pricing Oman’s crude oil directly off the Oman Crude Oil settlement price when it starts trading on the new Exchange, we are giving a resounding and unequivocal demonstration of our commitment to the DME’s long-term success.
“Of course MOG will be closely monitoring price discovery to ensure that the contract is trading in a robust manner reflecting fair market value for Oman Crude Oil. The Ministry will support the Dubai Mercantile Exchange by using it as the pricing methodology for Oman oil so long as it performs well and guarantees fair prices that match those of the global markets.”
Ahmad Sharaf, Chairman of the DME commented: “The Sultanate of Oman’s historic decision has a profound significance not just for the DME but the entire region and industry. It springs from the valuable and long-standing relationship between Oman and Dubai. Coupled with the regional and industry expertise of Tatweer and NYMEX, Oman’s commitment will be a major factor in the successful launch of a world class energy futures exchange in Dubai.”
He added: “Since we announced the creation of the Oman Crude Oil Futures Contract earlier this year, we have continued to work closely with our partners in Oman and consulted widely within the industry. Some observed that our prospects of success would be greatly enhanced by a change to Oman’s pricing policy. So we are naturally delighted by this development.”
Gary King, Chief Executive Officer of the DME, added: “This latest milestone in the complex and challenging process of creating the Middle East’s first energy futures exchange gives us renewed confidence in the success of the DME.
“We continue to make great progress on construction and fitting out of the Exchange’s facility in Dubai, have chosen a world-class technology platform, created a unique membership structure, engaged in the regulatory approval process with the Dubai Financial Services Authority, developed the world’s first Middle East crude oil futures contract and last but not least, secured the support of a major producing nation.
“All our efforts are now focussed on working with the DME’s partners to bring these many different elements together.”
The establishment of an exchange inside the Dubai International Financial Centre (DIFC) and the associated clearing and settlement services to be provided by the NYMEX Clearinghouse are subject to regulatory approval from the Dubai Financial Services Authority (DFSA) and the licensing of the DME as an Authorised Market Institution (AMI) to operate as an exchange.