The Dubai Mercantile Exchange (DME) and an Emirates National Oil Company (Enoc) subsidiary announced recently their signing of a memorandum of understanding to sell jet fuel futures 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 of the futures in the industry is mixed.
International Air Travel Assocation cheif economist Brian Pearce said that last year many European airlines were able to avoid some of the impact of higher prices as they had hedged a large proportion of their fuel bill and it was effective in reducing the volatility of fuel cost.
Gary Chapman president Group Services Emirates airlines: “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.”Qatar Airways and Gulf Air, however, do not hedge.
A spokesman for Qatar Airways 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.
Likewise, there is a consensus that Dubai will continue its rapid growth as it becomes a regional aviation hub.
Boeing spokesman Sami Lahoud said: “Oil producing regions such as the Arab countries benefit from higher fuel prices and this is causing a boom in the Middle East’s economy.
This is always reflected in a growth in passenger and air freight.”
And the DME expects that its futures contracts will enhance Dubai’s pole position.
Ahmad Sharaf, chairman of the Dubai Mercantile Exchange board of directors said: “Our relationship with Enoc in this venture also aptly demonstrates DME’s commitment to working with world-class partners in our pursuit of excellence.
We are well on the way to launching a world class exchange in Dubai that will offer the best financial and regulatory structures, technologies and contracts.”
Tayyeb Al Mulla, chief executive, International Refining and Marketing, Enoc, said: “As the energy partner of choice, we are committed to the growth and development of the jet fuel industry in the region.
With the undertaking of this strategic agreement we look forward to utilising our knowledge in refining and marketing to play a key role in the future of the jet fuel industry.”
Gary King, chief executive of the DME, said: “We have already developed the first Oman crude oil futures contract with the backing and support of the Sultanate of Oman’s Ministry of Oil and Gas.
“Now we are seeking to structure additional contracts that can support the energy trading community in better managing price and credit risk in a transparent and open market.”
“This is a direct response to the market’s specific request for us to develop a jet fuel futures contract.”…..arry on listening to our customers and strive to meet their needs as we continue to make progress towards launching the exchange.”
The DME is a joint venture between Tatweer, a member of Dubai Holding, and Nymex, Inc.
The establishment of an exchange inside the DIFC and the associated clearing and settlement services to be provided by the Nymex clearinghouse are subject to regulatory approval from the Dubai Financial Services Authority.
(FSA) The licensing of the DME as an Authorised Market Institution to operate as an exchange is also covered by the FSA.
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