Improved letter of credit (L/C) availability appears to have helped precipitate a major change in the pattern of crude oil purchases by Chinese oil companies.

They are increasingly choosing to purchase from the eight-year-old Dubai Mercantile Exchange (DME), which has made a concerted effort recently to make L/Cs more available for purchases of its benchmark Oman Blend crude.

Rapid growth

Chinese oil imports now account for around 70 per cent of the physical delivery of oil traded on the DME, compared with about 40 per cent three years ago.

This puts DME's Oman crude contracts as a regional benchmark on a par with London's Brent crude and New York's West Texas Intermediate.

China's high demand for oil also appears to have made Oman crude the largest physically delivered oil futures contract in the world.

Bank recruitment

Asian banks signed up by DME to provide L/Cs for trade in Oman crude include Bank of China and DBS Bank, (DC World News, 30 June 2015).

In January 2015, Tokyo-headquartered Mizuho Bank joined a growing cohort of banks, including ING Bank, Rabobank and Royal Bank of Scotland, licensed to issue DME L/Cs directly from Singapore to guarantee deliveries of Oman crude oil (DC World News, 12 January 2015).

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.