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UAE - Part 2 - Dubai's Petroleum Trade & The Union's Logistics.

Dubai exports all of its crude oil output, which averages about 65,000 b/d compared with a peak of 425,000 b/d in October/November 1990. By 2015, Dubai will have become almost totally dependent on oil and gas imports from neighbouring Abu Dhabi and other GCC sources. According to a bold economic plan announced recently, Dubai's GDP should reach 100% by before the end of this decade. But Dubai will remain a player in regional oil trade.

Dubai's crude oil output is stabilised at 65,000 b/d thanks to EOR efforts now being maintained by McDermott of the US under a $10-15m/y O&M contract given in February 2012 by the Dubai Petroleum Establishment (DPE) for all the emirate's offshore fields (see gmt21-UAE-geoMay21-12).

The Dubai Mercantile Exchange (DME) - owned 32.5% by each of the New York Mercantile Exchange (NYMEX) and the Dubai state's Tatweer, 30% by the Muscat-owned Oman Investment Fund (OMF) and 5% by DME floor members - is a futures market for sour crude devised to complete the globalisation of oil trading for both sides of Suez. The crude oil markers traded on NYMEX (paper WTI) and on the ICE in London (the Brent group) are light/sweet grades.

Whereas WTI does not trade outside the US, its price (whether in contract form or on spot basis) partly influences the valuation of the Brent group, which trades globally. But Dated Brent influences the other world crude oil markers. DME's Oman crude, a sour grade, represents the black end of the global barrel and its valuation - while Brent and WTI cover the barrel's white end.

The DME describes the Oman futures contract as the "most transparent and strategically viable" price benchmark for east of Suez crude oil markets. But other crude oil producers in the region, including Saudi Arabia, Kuwait, Abu Dhabi, Iran, Iraq and Qatar, are still holding back from DME trade. And direct participation in the DME by key Asia-Pacific refiners is yet to expand. With NYMEX being the largest energy exchange in the world, its move into the DME has been seen as an attempt at Americanising global oil trade.

The Dubai Gold & Commodities Exchange (DGCX), one of the futures markets in this emirate other than the DME, trades in WTI contracts. On March 23, 2012, MEED quoted Bruce Powers, head of research at Trust Securities, one of the clearing brokerage members of the DGCX, as saying this exchange had traded 2,410 WTI contracts in February, up 31% on the January level, in view of then rising interest in the contract for this US light/sweet grade.

Powers noted that, at the time, interest in the WTI contract at the DGCX was high. He added: "The activity levels on [the] DGCX have gone up significantly since crude prices have gone up. Oil is moving into highs and is trading with a risk premium due to geo-political uncertainty [over Iran's nuclear plans] that has the potential to disrupt its flow". But since record highs for Dated Brent and WTI in March, crude oil prices in futures and spot trades across the globe have come down in view of sanctions against Iranian exports which were to go into effect from July 1.

Dubai crude is sour. But while actual trading in this crude has dropped in a big way due to a fall of its production, Dubai has turned into a brand, or index, representing a basket of sour crude oils (see the background in omt22UAEtradeMay31-10 and omt22UAEtradeMay26-08).
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Publication:APS Review Oil Market Trends
Geographic Code:7UNIT
Date:May 28, 2012
Previous Article:The OPEC Report.
Next Article:The Global Petroleum Perspective.

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