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Dubai Mercantile Exchange starts with online auctions

Staff writer ▼ | September 24, 2015
The Dubai Mercantile Exchange (DME) has launched online auctions aimed primarily at regional oil companies looking for more transparent and fair pricing.
Dubai   For more transparent and fair pricing
The exchange, which trades the benchmark regional crude futures contract, has been consulting with state oil companies in the Arabian Gulf for a year about a platform that would shed some light on the often murky pricing practices for crude oil and oil products.

The DME now regards the timing as ripe for the introduction of an auction platform as governments are keen to squeeze as much as they can out of contracts at a time of low oil prices.

They will also want best buying prices for petrol and diesel as they move towards liberalising their fuel markets, and they want to try to re-exert some measure of control amid rising Asian buying power.

The energy world has an overly complex way of pricing that basically entails buyers and sellers self-reporting to various news agencies, which then average out the reported prices and post an official price for a given product on that day.

The methodology has been found over the years to be open to abuse and manipulation, especially since the growth of derivatives – for example, futures, options and swaps – which can be traded profitably by those in a position to manipulate the underlying commodity’s price.

Even apart from price manipulation, the arcane methods of tendering to sell crude oil or to buy petrol, diesel and other such products have been notorious in many markets for being open to abuse through sweetheart and back-channel deals between buyer and seller.