Two charts pretty much sum up Christopher Fix’s view of the world at the moment. The chief executive of Dubai Mercantile Exchange spreads them out on a table at his comparatively modest offices in Dubai International Financial Centre.
One is a timeline of the oil price since the beginning of 2013, with news events – Syria, ISIL, Russia, Opec – tagged at various points along a chart that falls off abruptly towards the end.
The chart maps out the price of DME Oman crude, the product Mr Fix’s market was set up to promote, but it could just as well be Brent or West Texas Intermediate, the big marks of the oil world. “For most of last year, geopolitical events outweighed increasing production, then geopolitical scare ran out of steam. The world woke up and faltering demand became the main factor,” he says.
Mr Fix, a New Yorker by origin but now a much-travelled veteran of the oil industry who has been at DME coming up for three years, has at least satisfied himself of the basic reason behind the drastic collapse of the oil price.
“There is shrinking global demand. The US is no longer a big demand centre on global markets, but has surprised everybody by its ability to deliver on shale. Europe is weak, so China is the buyer of last resort.
“In these circumstances, with local producers pumping more and other suppliers also maintaining supply, the price is being squeezed,” he concludes.
If it’s that simple, can he say where the price will be by year end? “Ah, if I could do that, my name would be on the front of a big building somewhere. And, as DME is a regulated entity, we’re not allowed to make forecasts.”
Some experts have predicted a gradual recovery in the price of crude throughout 2015, and have pencilled in $75 to $80 per barrel by the end of the year.
“All I can say is this: the market is expecting more stability than last year. The market is cyclical, and will look to balance itself. It’s not balanced at current levels, so we could see the kind of levels you’re talking about,” he says. That’s as close as he will come to any kind of indication as to future prices.
The recent volatility has also restricted liquidity for oil contracts, he says. “Nobody will catch a falling piano, they say. Once the price stops falling, that’s when liquidity and trade will pick up.”
The other chart on his mind is rather more specialised. It shows year-on-year growth in 2014 in volumes for various energy contracts – ICE Brent, Nymex WTI, some gas contracts, and DME Oman.
All show declines in volume growth last year, with the exception of DME Oman, which was more than 30 per cent ahead at the end of November. “Our flagship contract had its best ever year despite the weak trading environment, and was the only major energy contract to grow last year,” says Mr Fix proudly.
That is pretty solid growth since he took over at DME in the summer of 2012. The following year, contracts were running at 6.36 million barrels per day, then leapt to 8.45 million bpd last year. He is aiming to hit the 10 million mark this year.
The pattern vindicates Mr Fix’s new strategy. DME had previously focused on the big national oil companies of the Arabian Gulf region, hoping to lure them on to the market on the theory that the region deserved its own oil trading platform and a contract to match the big ones of the West.
Mr Fix looked at it rather differently. He saw the big oil markets of the East, and looked there to gain momentum in the big consuming economies of Japan, South Korea, China and India. At the same time, he attracted end users of the product, such as big industrial corporations, as partners of DME.
“We want the big Asian markets to be the ones that lead us. The recent volatility will have taught them the benefit of being able to hedge against the rapidly falling prices. None of those economies have the tools to be able to hedge, but we can provide that,” he explains.
The latest alliance in the East was with the nascent Shanghai International Energy Exchange, which seems to satisfy both Chinese and Dubai aspirations. Shanghai wants an alternative to the dominant platforms of New York and London, where by far most of the world’s oil is traded; Dubai wants to set itself up as the benchmark for east-of-Suez oil trading.
Mr Fix expects the Shanghai deal to be up and running in the next couple of months. The South Koreans are also looking to become a power in oil, in partnership with the Gulf, by building the largest physical storage facility in the world for Middle East crude, he adds.
He finds the statistical logic compelling: “In the US, consumption is 60 barrels per capita per year; in China, it is six barrels. That represents huge potential, even if Chinese growth slows a little or the crackdown on spending by Communist party officials affects demand,” he says.
The DME offices, where we met, were designed as an “open outcry” model with a huge ostentatious trading floor, but in a smartly timed move Mr Fix adopted rather more utilitarian premises last year. “Nobody’s bigger than the market,” he says.
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