Asia’s increasing reliance on Middle Eastern crude, along with the futurization of oil markets, has increased the demand for dependable sour crude futures contracts. Oman has maintained political stability for several decades, allowing it to boost both crude oil output and exports. Oman crude oil has also established itself as a benchmark grade for the Middle East and Asian markets throughout this time.
The Dubai Mercantile Exchange (DME), in which CME Group has a 50% ownership, was established in 2006 and introduced its flagship Oman Crude Oil Futures Contract in 2007 in order to create a transparent crude oil benchmark for the region.
The DME price was approved as Oman’s official selling price the same year, with the Dubai government following suit subsequently. Recently, the national oil firms of Saudi Arabia, Bahrain, and Kuwait introduced DME Oman to their pricing formulas in 2018 and 2019, owing to its consistent trade volumes and utilization by international players.
As a result, Oman oil has become a significant part of the pricing structure for the 5.5 million barrels of Middle Eastern petroleum exported daily to Asia. DME Oman futures pricing is also a component of the Chinese Retail Fuel Price crude basket used by the Chinese National Development and Reform Commission to assess Chinese gasoline and oil prices alongside WTI and Brent.
This component part strengthens DME Oman Crude futures’ position as an important hedging instrument for the Asia market, particularly for end users whose refining margins are directly impacted by price swings.
Oman Crude futures
The DME Oman Crude Oil futures contract continues to be the world’s only sour physical-delivery crude oil futures contract, giving it a key hedging tool for firms with Middle Eastern oil exposure as well as speculative global oil traders.
For many years, Oman crude has been the de facto sour oil benchmark for exports to the East of Suez, and the establishment of DME Oman futures pricing has boosted transparency and significance for Asia. DME Oman, along with other global petroleum benchmarks such as WTI and Brent, is currently an important benchmark pricing tool for measuring worldwide crude flow.
Oil price volatility is projected to remain in 2022 as a result of a combination of supply concerns, difficulty anticipating demand owing to the ongoing pandemic scenario, and rising interest rates as central banks seek to manage inflation, which could lead to a stronger US currency.
As a result, oil customers’ requirement for hedging measures is anticipated to grow. Given Asia’s reliance on Middle Eastern oil imports, DME Oman Crude Oil futures contracts are an effective risk mitigation instrument.
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