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DME OMAN (PHYSICALLY SETTLED) CRUDE 
FUTURES CONTRACTS

AN EXPLANATION & AN ANALYSIS OF RELATED CREDIT RISK

Ron Wells

 

BACKGROUND

Dubai Mercantile Exchange (DME)

The DME (www.dubaimerc.com) is regulated by the Dubai Financial Services Authority (DFSA) and all trades executed on the DME are cleared through and guaranteed by CME Clearing.  CME means CME Group Inc., its Affiliates and subsidiaries.  CME Clearing is a division of CME.  CME is regulated by the U.S. Commodity Futures Trading Commission (CFTC) and accepted as a Recognised Body by the DFSA.

The DME is established in the Dubai International Financial Centre (DIFC), which is an on-shore financial hub strategically located between the east and western hemispheres.  It provides a secure and efficient base from which business and financial institutions reach into and out of the emerging markets of the region.

To learn more click here.  The picture of the first page of the written explanation appears below.  A copy of the Article and a PowerPoint slide presentation is available:

The Contractual Arrangements for OTC Oman Crude Cargoes:

Parties concluding OTC Oman Crude Oil purchase/sale contracts usually use Shell's General Terms & Conditions (GT&Cs) for Crude Oil contract; incorporating Schedule G, being the supplement in respect of FOB sales of Oman Export Blend Crude Oil. 

Credit risk is incurred
vis-à-vis the counterparty.

The ‘advantage’ for the Buyer of an OTC contract, versus a DME contract, lies in the avoidance of the obligation to place full cargo value equivalent margin with the Clearing House or Clearing Broker; from the last day of M-1 until the cargo invoice is paid.
The Seller avoids being required to leave initial margin in the hands of the Clearing House or Clearing Broker; from the last day of M-1 until the cargo is delivered.
The advantages mentioned may be tempered by the extent to which the parties require bilateral collateral arrangements to be in place.

Click the icon below to read the Shell Crude GT&Cs including Schedule G for OTC Oman Crude:  

ILLUSTRATIONS

Click the picture below to obtain a copy of the Article and the linked PowerPoint slide presentation, the latter includes illustrations that further clarify some of the information provided in the written explanation.

NOTES:

1.  API Gravity = American Petroleum Institute gravity, which is a measure of how heavy or light a petroleum liquid is as compared to water at 60 degrees Fahrenheit .  If greater than 10 the liquid is lighter than, so floats on water.  Light Crude = higher than API 31.1.  Medium Crude = between API 22.3 and API 31.1.  Heavy Crude = below API 22.3.  Extra Heavy Crude = below API 10.0

2.  Over the Counter (OTC) = A direct transaction with a disclosed counterparty; that is to say, not a transaction through the intermediation of an exchange.

3.  Dated (DTD) Prices = Prices applicable to crude oil cargoes to be delivered during this current month. Such cargoes are also referred to as ‘spot cargoes’ or ‘prompt cargoes’.

 

Disclaimer:
The information provided in this article and the related PowerPoint slide is derived from sources believed to be accurate and reliable. SUCH INFORMATION IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND AND RON WELLS AND/OR HIS ASSOCIATE(S) MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THIS INFORMATION. Under no circumstances do Ron Wells and/or his associate(s) have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error or other circumstance or contingency within or outside the control of Ron Wells and/or his associate(s) in connection with the procurement, collection, compilation, analysis, interpretation, editing, transcription, transmission, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory, or incidental damages whatsoever (including without limitation, lost profits). December 2012. 
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Last Updated:  January 02, 2017 17:17 -0000