INTRODUCTION

This chapter argues that the current techniques of oil price assessments have long ceased to serve the Arabian Gulf's urgent need for an efficient and transparent pricing system, and that existing practices of refined oil product pricing in the Gulf are in need of fundamental reform. Dubai is now an emerging key player in the business of Middle East energy flows and the setting of oil prices. The recent establishment of the Dubai Multi Commodities Centre (DMCC) and the Dubai Gold and Commodities Exchange (DGCX), the Middle East's first commodity derivatives exchange, are a reflection of Dubai's emergence as a commodity trading hub for the Gulf region. DMCC's ambition of setting up an energy futures market is based on the argument that futures contracts serve as both efficient and transparent instruments for price discovery. A robust futures market in the region would enable more efficient risk management for those who are producers, traders or end-users of refined oil products.

THE LOGIC OF PRICE DISCOVERY

Located among the world's most prolific oil and gas fields, Dubai is at the heart of global energy flows. According to the latest BP Statistical Review of World Energy, the oil industry's pre-eminent annual data source, the Middle East accounts for over 740 billion barrels of crude oil reserves, accounting for almost 62 per cent of the world's total in 2005. The region produced over 30 per cent, while consuming some 7 per cent, of the world's total output of oil in 2005. The region's exports, amounting to over 17 million barrels per day (b/d), constituted over 45 per cent of the world's total exports of crude oil last year.

The Gulf region of the Middle East is not only the source of much of the world's exports of crude oil, but remains a major exporter of refined oil products. This role will undoubtedly expand as the Gulf remains a focus of investments in the oil refining sector.