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Friday, 30 October 2009

The CME’s sour

Just two days after Saudi Aramco decided to change the way it prices its oil - by abandoning the Platts WTI benchmark in favour of Argus Petroleum’s Sour Crude Index - the CME, owner of the Nymex exchange, responded rather decisively.

According to a press release on Friday, the CME will be launching its own Argus Sour Crude Index swap futures to fill any potential hedging hole left in the market (our emphasis):

CME Group, the world’s largest and most diverse derivatives marketplace, today announced the launch of trading and clearing services for cash-settled trade-month swap futures on the Argus Sour Crude Index (ASCI) as published by Argus Media. Under a licensing agreement with Argus Media, CME Group can develop futures, options and over-the-counter (OTC) offerings on a broad range of Argus products.

Trading for the ASCI product is scheduled to begin November 23 on the New York trading floor. Clearing services will be available through CME ClearPort, a set of flexible clearing services open to OTC market participants to substantially mitigate counterparty risk and provide neutral settlement prices across asset classes. The ASCI tracks the price in the physical market of a basket of US Gulf Coast crude oils, including Mars, Poseidon and Southern Green Canyon, which are priced at a differential to the NYMEX Light Sweet Crude Oil (WTI), the world’s most liquid, leading crude oil benchmark.

The ASCI OTC contract will provide producers, commercials and others an essential tool for pricing spreads on these grades with NYMEX WTI. In addition, CME Group plans to launch a new physically delivered US Gulf Coast Sour Crude Oil futures contract, which will be listed on CME Globex and CME ClearPort by the end of January 2010. The sour crude futures contract has main delivery grades that closely mirror the ASCI, enabling an efficient tool for hedging opportunities and to meet the evolving needs of the energy industry.

The contracts will be listed by and subject to the rules and regulations of NYMEX. “We are pleased to offer OTC futures contracts on the ASCI, which complement our WTI futures,” said CME Group Executive Chairman Terry Duffy. “This week, Saudi Arabia announced that they will begin using the ASCI to price their substantial oil exports. This further strengthens the benchmark status of our WTI contract as ASCI components are priced as differentials to the WTI settlement price.”

“The ASCI OTC futures contract, in concert with the WTI contract, will enable our customers to hedge price exposure to the global crude market with greater precision,” said CME Group Chief Executive Officer Craig Donohue. “Additionally, Saudi Arabia’s adoption of ASCI could spur demand for our new sour crude futures contract, which will provide an additional pivot point for price determination and risk management in the world oil market.” The vendor code for the ASCI contract is 29. The first listed month will be the January 2010 contract month. The contract will be listed for 36 consecutive contract months.

The CME’s quick move to adjust to the sour switch, which we note has been facilitated by a licensing agreement with Argus, should help the exchange retain Nymex’s standing as the provider of the most liquid crude contract in the US.

However, even though the new sour product will be priced as a differential to WTI at this stage, that doesn’t mean that further down the line - if and when the sour index takes off - the index and all its derivatives won’t end up being priced completely off their own right.END

Dubai Properties Chairman Arrested on Suspicion of Embezzlement

Hashim Al Dabal, chairman of Dubai Properties LLC has been arrested on suspicion of embezzlement at the company, the emirate’s attorney general said.

“Mr. Al Dabal is accused of abusing his position and earning millions in illegal profit,” Attorney General Essam Essa al-Humaidan said in a phone interview today. “We are questioning him almost daily and Mr. Al Dabal indicated he is ready to answer questions without having a lawyer present.”

Last year, Dubai began an investigation into corruption in real estate companies, which benefited from surging demand after foreigners were allowed to buy property for the first time. Several officials were arrested, including Zack Shahin, former chief executive officer of the emirates’ second-biggest property developer, Deyaar Development PJSC, and Adel al-Shirawi, former CEO of mortgage lender Tamweel PJSC.

Dubai returns to fixed income sphere

Dubai returns to the fixed-income sphere for the first time in more than a year after raising about $2 billion from dirham and dollar-denominated Islamic bonds.

Confidence in the emirate had run aground earlier this year as investors bet on Dubai’s state-linked entities not being able refinance debt. So far, this year it has met all its obligations and with the fresh issue booking about $6.5 billion from regional and international investors, Dubai’s doomsday scenario appears to be vanishing.

With much of the United Arab Emirates’ oil coming from the largest of the emirates Abu Dhabi, investors have flocked to the capital this year as appetite for good emerging market debt revives. The spread between Abui Dhabi and Dubai widened at its peak to over 500 basis points in February, but Dubai government efforts to restore confidence — kickstarted by the UAE central bank buying $10 billion of its bonds — has helped spreads narrow to about 200 basis points.

Dubai still has a long way go. The next test will be property developer Nakheel resolving its $3.5 billion Islamic bond maturing on Dec. 14 and then a raft of debts in 2010…..but as Harold Wilson once said, ”A week’s long time in politics.”

Aabar to continue acquisitions

Aabar plans further acquisitions, notably in Latin America, after booking sharply higher third-quarter profits powered by its investment in the car maker Daimler.

“I can confirm that potential future transactions include new and exciting opportunities around the world and in areas not previously explored by Aabar,” said Mohammed al Husseiny, the chief executive of the investment firm controlled by the Abu Dhabi Government. His statement mentioned Latin America as a location of interest.

Earlier this month, the company announced it would pay US$328 million (Dh1.2 billion) to acquire a stake in Banco Santander (Brasil), a unit of Spain’s largest bank. That was the latest addition to a diverse portfolio of investments that includes Daimler, the maker of Mercedes-Benz, and Virgin Galactic, the space travel venture.

IPIC’s links to Europe grow stronger with agreement

Abu Dhabi’s International Petroleum Investment Company (IPIC) agreed to share ownership of its Nova Chemicals unit with the Austrian petroleum company OMV, deepening its long-standing relationship with the European firm in which it holds a 19.6 per cent stake.

Under an agreement struck about a month ago, Borealis, an IPIC-OMV chemicals joint venture based in Vienna, would acquire 24.9 per cent of Nova from IPIC. The deal received regulatory clearance from the European Commission last week.

“IPIC is currently reviewing synergies between us and its other portfolio companies with the objective of creating a new global polyolefins leader,” Nova said earlier this month. “In this context, IPIC and OMV have decided to share control of us similar to their successful joint ownership and control arrangements for Borealis.”

Mickey’s big hand is pointing right out the door

I was probably among the first 500 economic commentators to forecast the decline of the luxury watch industry. As the world went into financial meltdown last year it was clear to me that expensive watches, which perform a perfectly useless function nowadays, were superfluous.

Within days, they would all emulate Salvador Dali’s own perspective on time.

I am sure that the only reason other commentators failed to notice this is because they were focused on the downfall of firms such as Lehman Brothers and General Motors, although to my mind to see only these was to miss the big picture.

Road to recovery fraught with peril

Len Hunt, the group director of Al-Futtaim’s automotive division and a 30-year industry veteran, summed up the predicament facing the global economy perfectly this week with a driving analogy.

We have climbed up out of the recession, Mr Hunt said, and are cresting what we hope is the last rise before reaching recovery. But what really lies ahead, no one knows.

The worst recession in 70 years is officially over. The world’s largest economy resumed its expansion in the third quarter, growing 3.5 per cent from the previous three months. The rest of the world, including the Gulf, appears to be in a stubbornly slow, but steady, recovery.

Gulf stock markets brace for correction

Stock markets fell the most in two months on Thursday as a global sell-off was made worse by a host of quarterly profit declines across the key banking and construction sectors.

The gloom lifted late in the day when the US reported surprisingly strong 3.5 per cent growth in the third quarter, the first positive quarter in more than a year. But many economists still doubted the resilience of recent gains in global asset prices as stimulus spending subsides.

“What bothers me is that global markets are quite heavily overextended, and if there is a correction the spillover could affect this region,” said Fahd Iqbal, the vice president of research at EFG-Hermes.

Dubai Technosphere takes a page from Disney's playbook

The Technosphere is an eco-friendly building set to be built in Dubai. Shaped like a sphere, it's a solar powered design with minimal waste, with the whole thing meant to represent the state of the Earth's ecosystem. Oh, and it also looks just like Spaceship Earth at Disney's Epcot Center.

But hey, wait, isn't Dubai totally screwed, money-wise? I thought they stopped putting up insane buildings for no real reason because they were out of money? Maybe this one is what'll turn it all around for them.

Saudi move is bid to realign oil market: John Kemp

Saudi Aramco's decision to abandon a light sweet oil benchmark closely linked to NYMEX futures as the basis for crude sales to U.S. customers reflects growing frustration with its performance over the last two years.

While it will not imperil NYMEX's status as the main forum for oil futures trading, it will increase pressure on the exchange to consider adjustments to its contract. In time NYMEX may have to allow a wider range of crudes to be delivered and add a delivery location on the U.S. Gulf Coast [ID:nLN445640].

Qatar Holding Said to Consider Joining GE’s Areva Bid

Qatar may join General Electric Co. and CVC Capital Partners Ltd. in their bid to buy Areva SA’s electricity transmission and distribution unit, two people familiar with the matter said.

Qatar Holding LLC, an investment unit of the Persian Gulf country’s sovereign wealth fund, hired New York-based investment bank Evercore Partners Inc. to advise on acquiring a stake in Areva’s unit should the GE-led bid succeed, said the people, who declined to be named because the talks are private. Officials at Doha-based Qatar Holding declined to comment.

Areva, the world’s largest maker of nuclear reactors, received three indicative bids worth less than 4 billion euros ($5.9 billion) for the unit, people close to the sale said last month.

Downsizing Dubai: Will the Middle East's golden child ever be the same again?

The UAE is waking up … but it has one hell of a hangover, and it’s going to take more than a couple of fizzy tablets to make it all better. So what sort of market is emerging? Well, the chances are it’s going to be good news for shed builders

It’s only 7pm on Tuesday night but it is already buzzing in Neo, the swanky cocktail bar at the top of The Address, a 63-storey hotel in Dubai. The view from the floor-to-ceiling window is stunning. We are immediately opposite the 818m Burj Dubai, the world’s tallest tower, which is due to open with one almighty party on 2 December, the UAE’s National Day. On the lake in front of it, the world’s largest fountain performs a mesmerising dance on the half hour. Beyond are the glittering lights of the city … including those of tower cranes, because like the nightlife, construction is moving again. The roads are clogged with traffic and the armies of labourers are back on the city’s sites.

In fact, six months after the global recession brought Dubai to a screeching halt, it does not feel like there is a recession here at all. Down the road, Abu Dhabi is busy again, too. But despite the evidence of recovery, nobody thinks the UAE is about to turn back into the rocket economy that exploded so spectacularly at the end of last year, and many British firms here are still struggling. So the question is, exactly what will the new UAE market look like?

Dubai bond sale a move in right direction

Dubai’s successful bond sale this week was hailed as an important step towards bringing the debt-saddled emirate back on track, but bankers and analysts warned it still needed to raise more money to meet looming repayments.

The Gulf’s leading business hub has been at the epicentre of a regional downturn, weighed down by a collapse in the real estate market and an estimated $80bn mountain of debt.

Earlier this year Dubai’s creditors were concerned the emirate could default, but thanks in large part to succour from the federal government of the United Arab Emirates – of which Dubai is one of seven autonomous statelets – the emirate is now showing signs of recovering from its malaise.