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Sun 8 Oct 2006 04:00 AM

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Dubai set to sell fuel futures

The Dubai Mercantile Exchange (DME) and Emirates National Oil Company plan to sell jet fuel futures sometime next year.

The Dubai Mercantile Exchange (DME) and an Emirates National Oil Company (Enoc) subsidiary have signed a memorandum of understanding to sell jet fuel futures sometime next year. The futures will be traded on the DME, based in the Dubai International Financial Centre (DIFC).

Enoc Supply & Trading and DME are combining the DME’s industry expertise with Enoc’s experience and infrastructure in the refining and marketing of jet fuel. Hussain Sultan, Enoc’s chief executive said: “This is a ground breaking initiative and we are delighted to join together with the DME to explore the development of the first ever jet fuel futures contract. Enoc has extensive expertise in this area and we are well placed to work with the DME and collaborate with the jet industry to create a successful, liquid risk management tool for the airline industry, refineries and other energy players.”

Views on hedging in the local aviation industry are varied. Gary Chapman, president, group services, Emirates Airline, said: “We don’t buy jet fuel futures in Singapore because it is so expensive. So if Dubai can come up with something that’s transparent and liquid enough we’re interested. We hope to be part of DME’s working group that decides on the contracts.”

James Hogan, the outgoing CEO of Gulf Air, has previously lamented the fact that the airline did not hedge its fuel. “We are very open in the fact that we did not hedge the fuel and we have taken a knock because of that,” he told ITP.net last month.

Qatar Airways does not hedge and appears reluctant to do so. A spokesman for the airline said: “The degree to which airlines achieve protection from rising fuel prices differs greatly and depends on the airlines’ willingness to incur risk. Many airlines have lost money by trying to hedge too aggressively.”

One thing that everyone in the business does agree on however, is that soaring jet fuel prices — the cost of fuel for Gulf Air has shot up form 13% of its operating cost in 2002 to 30% today — are forcing changes.

According to DME, the launch of jet fuel futures would be a response to market demand. Gary King, chief executive of the DME, said: “This is a direct response to the market’s specific request for us to develop a jet fuel futures contract. We will carry on listening to our customers and strive to meet their needs as we continue to make progress towards launching the exchange.”

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