Dubai to price physical oil against DME Oman futures

Dubai Mercantile Exchange (DME) has confirmed that the Dubai Department of Petroleum Affairs (DPA) will set its official monthly selling price (OSP) for physical crude based on a differential to the settlement price of the DME's Oman Crude Oil Futures Contract.

Traditionally, Middle Eastern producers have priced physical cargoes at a differential to published estimates of Dubai/Oman prices, typically set retroactively for the previous month. In moving to pricing based on futures contracts, the OSP for the front month will now be set in advance, with the differential set three months prior (M-3), and the final OSP calculated at the end of M-2.

"Dubai has priced its oil in relation to the DME from the launch of the Exchange in June 2007," said Abdulla Abdul Karim, Director of the Department of Petroleum Affairs, in a statement. "Now, by announcing a forward price based on the DME Oman contract, we will signal to the markets the price of Dubai crude in relation to Oman, further strengthening the commitment to price transparency and fair value for Middle East Crude oil."

DME CEO Tom Leaver says the decision will closes the gap in price discovery for the Dubai and Oman benchmarks. "Publishing an OSP for Dubai is a strong signal to other Gulf producers to join this initiative and back true and fair value for their oil exports by adopting DME settlements in their term contract formulae," he says. "This move ensures that customers know they are getting fair value and provides them with the ability to manage their exposure to price fluctuations in the major component of their feedstock costs using the benchmark futures contract."