Evolution of the Middle East Trading Ecosystem May 2013
Contents Changing Supply/Demand Dynamics Changes Drive Trading Ecosystem Oman: Key to Crude Oil Markets Conclusion Dubai Mercantile Exchange 2
DME Update: CME Group ups stake to 50% Core shareholders 50% 29% 9% Some of our strategic partners 12% Dubai Mercantile Exchange 3
Volume continues long-term growth trajectory Average Daily Volume, contracts (2007 May 2013) Annual 5,887 1,357 1,274 2,156 +28% 2,944 3,505 4,667 2007 2008 2009 2010 2011 2012 2013 DME hits 4bn bbls traded in February, and sees record open interest of 23,429 contracts in March, and record 64 market participants at for 2012 1 Includes data up to May 6 th, 2013 Dubai Mercantile Exchange 4
Contents Changing Supply/Demand Dynamics Changes Drive Trading Ecosystem Oman: Key to Crude Oil Markets Conclusion Dubai Mercantile Exchange 5
We all know about the Asian story, but don t forget the Middle East one Average GDP growth (forecast), percent (2014 2018) 2014-2018 7.6% 5.7% Despite the politics, the Middle East and North Africa is forecast to grow at an impressive 4.4% on average between 2014-2018 4.4% 3.9% 3.2% 2.5% 1.7% Developing Asia Sub-Saharan Africa Middle East and North Africa Latin America and the Caribbean United States Advanced economies European Union SOURCE: IMF World Economic Outlook, April 2013 Dubai Mercantile Exchange 6
Middle East population is growing Factors driving growth in Middle Eastern population 1 Youthful population Qatar was the fastest growing country in the world in 2012 with 4.9% population growth GCC population (2001 2011), million, breakdown and CAGR 2 with high birth rates, and Expats Nationals +4.6% 47 3 and improving life expectancy, 30 23 11 19 24 2001 2011 4 Compounded by an influx of foreign workers SOURCE: National Statistical Authorities, Qatar National Bank (QNB) Dubai Mercantile Exchange 7
Middle East energy demand is surging Top 15 per capita consumption, kg oil equivalent per year EXAMPLE GASOLINE United States Kuwait Canada Luxembourg Oman Saudi Arabia Qatar Australia Brunei Bahrain UAE New Zealand Iceland Venezuela Switzerland 1,108 921 901 690 671 646 634 592 589 540 530 529 465 413 404 Subsidies Industrialization Population growth Policy Climate SOURCE: Energy Information Administration Dubai Mercantile Exchange 8
Crude oil production dynamics are also changing Production growth seen as region tries to maintain export volumes Iraqi production is surging. Target production is between 5 and 6 million b/d by 2016 which could rank Iraq in the top four oil producing countries. Kuwaiti production multi-decade high of over 2.8 million b/d Qatari production of 740,000 b/d of crude and over 700,000 b/d of condensate Saudi production back to 9.3 million b/d in April and likely to increase further to meet domestic summer demand UAE: 2.6 million b/d and plans for 3.5 million Omani production back above 900,000 b/d and 1 million b/d targeted Dubai down to 50,000 b/d and coming to an end Iranian sanctions likely to remain in place Dubai Mercantile Exchange 9
Contents Changing Supply/Demand Dynamics Changes Drive Trading Ecosystem Oman: Key to Crude Oil Markets Conclusion Dubai Mercantile Exchange 10
Growing the Middle East ecosystem Producers Financial institutions Consumers The Middle East is on the brink of a trading revolution Regulators Middle East Trading Ecosystem Putting the Middle East on the global oil market trading map Traders Major expansion projects in refining, pipelines and storage NOCs adopting more market-focused trading and hedging strategies Media Brokers Middle East and Asian growth will make the region a key hub for price discovery Physical infrastructure Dubai Mercantile Exchange 11
Trading ecosystem is booming NOCs: Saudi Aramco creates Aramco Trading in 2012 (not crude or LPG); Oman has a JV with Vitol: Oman Trading International New firms set up in Dubai: JLT Free Zone registered 2,033 companies in 2012 50% up on 2011 and to date they are up 50% again May 13: Abu Dhabi announces the Abu Dhabi World Financial Market free zone Arab banks increase their involvement in trade finance Energy traders/brokers increasingly setting up in Dubai for the first time some to trade DME, others to position themselves around the Fujairah products hub Dubai Mercantile Exchange 12
Growing need for Middle East benchmarks Rapid expansion of storage in the region, particularly in the Fujairah hub NOCs adopting a more market-focused strategy Regional products prices become more volatile in relation to Singapore New commercially minded export refineries will seek benchmarks to reflect fair value of products Growth in intra-regional balancing of refined products references Singapore today does not make sense Flat price volatility will undoubtedly continue as a feature of the market, so hedging inventory is essential to mitigate risk Dubai Mercantile Exchange 13
Is Fujairah the game changer for the Middle East? Storage capacity (products and crude), million cubic meters Major refined products hub Relative newcomer to the independent storage market (1998) Forecast to grow to ~9 million cubic meters by 2015 Major bunkering hub with volumes approx 20 million tons per year (Singapore 40 mtpa) Third party access to storage key to success Aramco Trading takes major refined products storage position in 2013 SOURCE: Vopak Horizon Terminals, Fujairah Port Authority (2012) Dubai Mercantile Exchange 14
Contents Changing Supply/Demand Dynamics Changes Drive Trading Ecosystem Oman: Key to Crude Oil Markets Conclusion Dubai Mercantile Exchange 15
Oman continues to set Asia s crude prices Top: No. of cargos delivered in Dubai and DME markets, units Bottom: Dubai spot price diff to Oman, USD/bbl DME Oman Oman Upper Zakum Dubai Dubai market deliverable grades 30 25 20 15 10 5 $2 $1 2 4 2 3 3 12 2 4 5 1 1 5 1 5 1 2 3 1 Oman increasingly grade most likely to be delivered in Dubai market, makes Oman price setter for Asian crude frequently with Oman now setting the price for both Dubai and Upper Zakum $0 Jan 2012 Mar May Jul Sep Nov Jan 2013 Mar May Jul Dubai Mercantile Exchange 16
A healthy number of participants are trading on the DME during the year Number of unique customers on DME by year, # customers +23% 64 The DME customer base includes nearly all physical players in the East of Suez market 52 Customer loyalty is high and majority of customers have been trading on the DME since the Exchange was established in 2007 2011 2012 Dubai Mercantile Exchange 17
Contents Changing Supply/Demand Dynamics Changes Drive Trading Ecosystem Oman: Key to Crude Oil Markets Conclusion Dubai Mercantile Exchange 18
Conclusion Demand center as well as a supply center Trading patterns are evolving to reflect these changes Middle East NOCs are also adapting New firms and financing models are evolving DME is well placed to meet the need for regional futures trade Dubai Mercantile Exchange 19
Thank you Copyright DME 2013 Dubai Mercantile Exchange 20