NEW YORK, June 11: The New York Mercantile Exchange, the world’s largest physical commodities exchange, has joined with Dubai, the prosperous United Arab Emirates city, to build the first energy futures exchange in the Middle East.

Partnership documents were signed midday Friday at the NYMEX headquarters in New York for the creation of the Dubai Mercantile Exchange.

The exchange, which NYMEX will run and also serve as clearinghouse, is targeted to open by early 2006 with an initial offering of a benchmark sour crude futures contract.

The organizers said fuel oil futures will also be introduced early in the exchange’s operations.

NYMEX President James Newsome hedged on what other contracts the exchange will offer. Some sources have said DME may also offer a futures contract on gold.

We have an open slate on what to offer ... we will listen to the marketplace and ask, ‘What are your needs?’ he added.

NYMEX and its partner, Dubai Holding, a diversified private company with investments in energy, finance and communication, among others, will spend $50 million to put up the exchange.

Capital and services will come from the partners to get the ball rolling for the 50/50 joint venture.

In addition, NYMEX will contribute software and systems to run DME’s trading operations, including trade entry and risk management systems.

NYMEX Chairman Mitchell Steinhause said the new exchange will create a transparent pricing benchmark for Middle Eastern crude oil.

Trading on the DME will offer arbitrage possibilities, Steinhause said, citing the time zone gap between Europe and Asia, and with current trading hours on the NYMEX covered by its electronic ACCESS system while the exchange’s open-outcry session is closed.

The DME’s launch will help bring about a “gradual revolution of the Arab capital market,” said Mohammed Al Gergawi, chief executive of Dubai Holding.

Traders in the region have raised the possibility that crude from Oman or Dubai would be the exchange’s initial contract.

“We want governments in the region to be supportive,” Newsome said, adding that the partnership will hold talks with those governments in the next six months.—Reuters