Guest article written for AllAboutAlpha.com – the official publication of the Chartered Alternative Investment Analyst (CAIA) Association
The world’s future exchanges have always been built around the needs of trade-cycles. The gamut of participants in any commodity not only require clear and standardised pricing, but also need to be able to hedge that pricing now- and in the future.
It is no surprise that after a century of growth, the Western World has largely dominated the theatre for such markets, being the major source of production and off-take. Globalisation has however, changed a lot of these dynamics. Looking at just one commodity- crude oil- we see that while the United States are still the single largest consumer (at around 19.15 million bbl/day), the economies of China, Japan and India are not far behind (with a total consumption of 16.682 million bbl/day). To contrast this, the total consumption of the European Union is around 13.7 million bbl/day. Importantly too, these ‘East of Suez‘ markets, unlike their western counterparts, are growing – and fast.
Launched in 2007, the Dubai Mercantile Exchange (DME) has taken a unique position in the market, providing a primary energy benchmark (through the DME flagship Oman Crude contracts) for destinations East of Suez. Growth of DME has been astonishing. A release in August 2012 noted that, “…in 2012, trades on DME passed the 3 billion barrel mark, with a total of 3.478 million contracts (eqv. 3.478 billion barrels) traded on the Exchange and annual average daily volumes growing at an annual compounded rate of 31%…“ DME Oman is now the largest physically delivered crude oil futures contract in the world, and the world’s third official benchmark for oil trading, alongside West Texas Intermediate (WTI) and Brent.
To learn more about the Dubai Mercantile Exchange, we spoke to CEO Christopher Fix. Continue reading