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Dubai to launch fuel oil contracts

DUBAI — Dubai Gold and Commodities Exchange (DGCX) will launch its energy portfolio with a fuel oil contract next year to help position Dubai as the Gulfís energy trading hub, an official said yesterday.

DGCX, a joint venture between free zone authority Dubai Metals and Commodities Centre and Indian partners, is expected to be launched in November with a gold futures contract.

Freight, energy and more metals contracts will follow on the electronic derivatives market in Dubai emirate, part of Opec producer United Arab Emirates.

Tilak Doshi, executive director of the energy division, said the focus would be on fuel oil at first and then incorporate other refined products such as gasoline and gas oil.

"Now, we are in the process of industry consultations. We've held a first round in Dubai as well as in Bahrain and Sharjah to talk to producers, traders and storage companies," he said.

"We are looking at the first half of 2006 for the actual launch of the contract," he told Reuters, adding that work on finalising contract structure and details would take place after industry consultations.

He said the fuel oil trade involves a range of commodities with different specifications, including 180-centistoke and 380 centi-stoke fuel oil as well as straight-run and cracked material.

Dubai government has also signed a deal with the New York Mercantile Exchange to launch the Dubai Mercantile Exchange (DME) by the middle of 2006.

DME organisers have said they plan to launch by the middle of 2006 with an initial offering of a crude futures contract and that a fuel oil futures will also be introduced early in the exchange operations.

Transparent pricing: Doshi said the DGCX exchange would create a transparent pricing benchmark for Middle Eastern refined products.

"The Middle East is emerging as a price discoverer in its own right. For instance, the UAE emirate Fujairah is already the second largest bunkering centre behind Singapore," he said.

The port of Fujairah had annual fuel oil sales of 12 million tonnes in 2004, netting $2.5 billion. Still stronger crude oil prices are expected to ensure even higher sales of marine fuels this year and further investment in the east coast emirate's marine fuels, or bunkering, industry is also anticipated.

"The feedback from the industry is that there is a requirement for price discovery," Doshi said.

Doshi said both DGCX and DME would help boost transparency.

"They are focusing on sour crude and ours is on the refined products side. If we feel there is space for us in other areas including crude, that will be for the industry to decide," he said.

"In Dubai, initiatives are undertaken by several groups and this creates healthy internal competition."

The exchanges are part of Dubai’s ambitious plans to boost its position as the Middle East’s prime trading centre. It is already the Gulf region’s tourism hub and is working on establishing itself as a financial district.