Dubai's crude futures in cautious debut

The Dubai Gold and Commodities Exchange's (DGCX) new crude futures saw moderate trade on their debut on Tuesday, but dealers said investor confidence in the two contracts will depend on volumes over the coming sessions.

The two cash-settled light sweet crude oil contracts started trading at 4:30am GMT on the DGCX, which aims to allow funds in the world's top oil exporting region to invest in oil futures without taking money elsewhere.

The first contract's front-month August, equivalent to US benchmark West Texas Intermediate crude, as listed on the New York Mercantile Exchange had traded around 2,321 lots at 4:50pm GMT.

The exchange saw only 19 lots of the front-month August Brent crude contract, equivalent to European benchmark Brent crude, as listed on the Intercontinental Exchange (ICE).

Traders said volume on the Dubai WTC contract was more than they expected, but it would be weeks before the success of the contract could be measured.

"It is a good start for the Dubai WTI contract, but we have previously seen some oil contracts trading pretty well for a few days then traders stop looking at them," a Dubai-based trader said.

"Whether the contract will continue to attract enough liquidity to be viable or not, is something we will be able to predict after a few weeks of trading."

DGCX tried to launch a fuel oil contract in October 2006, but the contract was beset by technical issues and a lack of trade.

A leading Dubai-based broker said the DGCX should not have launched the two contracts before introducing a strong market maker programme.

"The exchange has struggled before to build liquidity for a number of contracts, so they should have had a solid market maker scheme before introducing two new contracts, especially that the region is relatively new to the concept of futures trading in oil," the broker said.

"If you look at the Brent contract they launched today you will see it was not trading more than 13 lots for most of the day, which is very low, and I don't think it will build up in the next few days," he told Reuters.

The DGCX and its rival the Dubai Mercantile Exchange (DME), backed by NYMEX, are competing for potential new markets for energy futures in the region. The DME is working on a jet fuel contract.

The DME launched a sour Middle East crude contract in June 2007, which has survived longer than many past attempts to launch Middle East crude contracts, but has yet to establish itself as a viable vehicle for hedging and speculation.

The DME will also launch two new cash-settled crude futures contracts for Brent and Oman crude on June 2, hoping to attract more financial players.

"With the region being home large part of crude oil supply and nerve centre of a booming economy, investor interests may accelerate as the contract matures," said Pradeep Unni assistant vice president of Vision Commodities Services.

"The new contracts bring the crude oil markets in the United States and United Kingdom closer to the Asian markets," Unni said.

The Dubai Multi Commodities Centre (DMCC), which owns a majority stake in the DGCX, said in November it was planning to launch a liquefied natural gas (LNG) futures contract.

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