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MENAFN - Khaleej Times - 26/12/2013

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(MENAFN - Khaleej Times) Christopher Fix, CEO of Dubai Mercantile Exchange, talks about the changing dynamics in global crude oil consumption, the need for a reliable pricing benchmark and the opportunities for Middle Eastern banks to start financing Arab oil, in an exclusive interview with Khaleej Times.

The growing economies of China, India and South East Asia have, over the years, generated an ever increasing demand for energy, which will drive the consumption of crude oil in the markets East of the Suez, said Christopher Fix, chief executive of the Dubai Mercantile Exchange (DME).

According to Fix, over 90 per cent of the growth in oil demand is going to be in the markets to the East of the Suez.

"The industrialised economies of the US and Europe are becoming more self-sufficient. They are producing vehicles that demand less fuel, they are being more conservative about their consumption, and that is flattening out demand; whereas in the East the demand is increasing," said Fix.

"When you look at what's happening in terms of middle income families and their determination to have a better lifestyle, what we see is a huge increase in demand not only across the energy spectrum but also across the agricultural spectrum," he explained.

"People today have more disposable income and they use that to get better goods and services for themselves."

Launched in 2007, the DME is the premier international energy futures and commodities exchange in the Middle East, which aims to provide oil producers, traders and consumers engaged in the East of Suez markets with transparent pricing of crude oil. The DME's flagship Oman Crude Oil Futures Contract (DME Oman) is the world's third crude oil benchmark and the sole benchmark for Oman and Dubai exported crude oil. Fix revealed that the DME Oman sends 50-60 per cent of its crude oil to China. The remaining goes through South East Asia, to the growing economies of Thailand, Indonesia and Malaysia, as well as to Japan and Korea.

"India is one of the areas that represents a lot of interest to us because they import all of their crude oil and have a fast growing economy with a huge population. Both South East Asia and India are going to be seeing a huge growth in demand," predicted Fix.

"Indonesia is growing at a very rapid rate, as are Thailand and Malaysia. They are going to compete with China when it comes to demand, but as a baseload, I think China will continue as the largest crude importer in the world."

A good indication of this trend, Fix explained, was the increase in the number of vehicles on the roads in China. He revealed that China is the number one car buyer in the world right now above the United States.

"Right now the Chinese are consuming nine barrels of oil per person as compared to a person in the US who consumes roughly 60 barrels of oil," said Fix. "So if that demand gap continues to close, you will see a drive for increased oil needs that is going to be mirrored across the East of the Suez from the Arabian Gulf all the way to Tokyo. It is very bullish from a demand perspective."

When asked if the economic downturn had impacted the demand and consumption of crude oil, Fix answered in the negative and revealed that consumption had been steady.

"2008 was a bit of a demand dump especially in the developed European and American economies, but the developing economies maintained quite a bit of demand security," Fix said.

"The demand has been consistent and it is now picking up because we are seeing economies take off upwards and all the EIA and Opec forecasts are showing growth. So of the increase that the EIA and Opec predict for the future to 2035, 90 per cent of it will be in the market that the DME is serving, and that is very significant and puts us in a very good position."

Speaking on the success story of the Dubai Mercantile Exchange, Fix revealed that in September 2013 the DME achieved a new milestone, when it reached the five billion barrel mark, with a total of five million contracts traded on the exchange. The milestone came just seven months after the DME passed the four billion barrels mark. In November 2013, the DME announced a new open interest record for its Oman Crude Oil Futures contract of 24,391 lots, which is equivalent to 24.4 million barrels of crude oil. The previous record was set on March 26, 2013 when open interest was 23,429 lots.

In addition, the DME recorded average daily trading volumes (ADV) of 7,450 lots in November 2013, equivalent to almost 7.5 million barrels of crude oil per day. Total is 80 per cent higher than November 2012 and is a 16 per cent increase over the last month. DME's previous record performance was 7,381 ADV, which was set in July 2013. Yearly ADVs have grown steadily since the DME was launched, leaping from 4,667 in 2012 to 6,350 this year to date.

"We have been growing at a rate of 38 per cent this year," said Fix. "As of November 1, 2013 we have traded 1,480,000 contracts year to date, which when compared with the 1,077,000 for the year before is about 40 per cent in growth."

"We are going to finish the year on a record year," Fix added. "For December this year we are over 7.5 million barrels of oil a day and we will carry that growth over into next year. If we continue to grow at 35-38 per cent we will be at over 10,000 contracts sometime in 2014."

Speaking on the need for a reliable crude oil benchmark for the markets East of the Suez, Fix said: "The DME is a sour crude benchmark which is distinctively different from the WTI and Brent benchmarks which are light sweet crudes. Medium sour crude is the baseload crude for the Middle East."

"The Middle East is the largest producer and the area with the largest reserves [of medium sour crude]. Not only that, it is also the area that supplies the fastest growing customer dynamic which is India and China. And light sweet crude is not the type being used in those industrial complexes. So the Middle East deserves, because of its stature as a major oil producer, its own oil price benchmark and that the crude oil that comes from the Middle East is different and distinct from the other two benchmarks definitely highlights the fact that there is a benchmark required East of the Suez," Fix explained.

In addition, Fix also highlighted the need for Arab banks in the region to participate in the financing opportunities created by the DME.

"When we look at the DME, we see that every month, on average, there is a financing need between a billion and a billion and a half dollars. We're delivering between 13-15 million barrels of oil through the DME and that creates financing opportunities that I would like banks in the region to participate in," noted Fix.

"Currently all of that financing is being done by foreign banks. There is really an opportunity for Middle Eastern banks, which do have quite a bit of capital, because of the development that is going on in the region and also because of the petroleum reserves that have been building up substantial cash positions in the economies over the last forty years," he added.

"What I would like to see is Arab banks financing Arab oil. I think this is a sustainable industry that would contribute many valuable jobs into the economies of the Gulf."


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