The Dubai Mercantile Exchange (DME) is expected to be majority-owned by the world's largest commodity trading platform by the end of the month, as it seeks to become the benchmark index for crude traded out of the Gulf.
The Chicago Mercantile Exchange (CME), which already holds a 25 per cent stake in the DME, is to become the majority partner in the joint venture, according to Thomas Leaver, the DME's chief executive.
"They've woken up to see what a jewel in the crown they have, vis-a-vis the Oman contract and what it will mean for the East of Suez market," Mr Leaver said.
The Oman Investment Fund, which also owns a quarter of the exchange, will increase its stake. Tatweer, a subsidiary of Dubai Holding, and a group of strategic shareholders will see their interests reduced as a result of the restructuring. Dubai Holding is owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.
The funds used to acquire the additional stakes are to be reinvested in the exchange, and it is hoped the CME commitment will help it broaden its liquidity base.
"We are leveraging the CME strength in the exchange base and in marketing. This [deal] will further enhance the financial sustainability of the exchange … and the connection to the financial community," Mr Leaver said.
The DME was launched in 2007 with the intent of becoming a reference point for pricing crude exported by Gulf producers. Future contracts for Gulf crude are currently priced on the back of trading on the electronic platform set up by the pricing service Platts.
The contracts used by most Gulf national oil companies to sell their product are based in equal parts on sales of Dubai and Oman crude, a mechanism that is prone to inaccuracies as Dubai's oil production has dwindled to insignificant amounts. With Dubai crude trading infrequently and only in small volumes, the Platts platform is vulnerable to manipulation.
"If I'm a big consumer of Gulf crude on term contracts, I have a huge incentive to push the Platts window price around to my benefit," Mr Leaver said.
The DME has addressed this imbalance by basing its prices on the physical trade of Oman crude, with the sultanate's 900,000 barrels per day production providing the basis for more accurate assessments. The DME expects its positioning to pay off over the long term.
"We want more national oil company [NOC] adoption of DME prices as benchmark in their term contracts," said Mr Leaver, who believes the CME's show of faith will help to convince NOCs to change their pricing fundamentals.
The DME recorded a 19 per cent increase in trading volumes last year. Led by the flagship Oman Crude Oil Futures contract, the exchange traded about 145 million barrels of crude last year.