Christopher Fix regularly spends his time meeting oil ministers in Dubai and jetting off to Shanghai to practice his Mandarin with businessmen and factory owners. But he took a few hours from his breakneck schedule to return to his alma mater and talk about his observations as a businessman on the move across Asia.
Fix, the CEO of the Dubai Mercantile Exchange (DME) and an alumnus of the class of ‘86, deals primarily with the pricing and trading of oil throughout South Asia. To him, the oil market is only a fraction of the region’s potential.
“There’s a middle class that’s growing by the hundreds of millions,” Fix said. “It is staggering to think about how these people are incrementally earning more money and they are deploying it in many different ways.”
Fix described the amenities that Dubai alone had. He displayed pictures of skyscrapers, man-made islands and the landmarks that he says define the city. According to him, the city is also the largest transportation hub in the world.
“Within four hours flight radius of Dubai is half the world’s population and with eight hours it’s two-thirds,” Fix said. “This is an extremely important place to see this economic activity growth.”
After his graduation, Fix left Binghamton to travel to Beijing in one of the first United States-China teacher exchanges since trade had reopened between the two countries. He said the immersion into a new language and culture transformed him.
“When I go to Chicago and I talk about China, they know I speak Chinese and they know I just came from Beijing,” Fix said. “They listen to me.”
Traveling and working in another country offered immense opportunity for personal growth, Fix said.
“When you are there and among exposed cultures that have been around for 6,000 years, and you are talking to people in these markets, you just might find something of yourself,” Fix said.
He urged students in the audience to follow his path and spend time working abroad. Nevertheless, he said, succeeding in Asia was difficult and required hard work.
“This is a competitive market and they do understand what the best ideas are,” Fix said. “It is better for you to be building your relationships and developing your value propositions.”
Personal relationships, Fix highlighted, were a critical aspect of business in China. From personal experience, he said, it was important to make conversation and casual time for customers outside of the professional environment.
“It takes years to build solid foundations for business in this region,” Fix said.
Despite the difficulties, Fix said, international businesses wanted all the professional travelers they could find.
“I’m hoping that some of you might take the same path and start thinking outside the U.S.,” Fix said. “We have lots of people depending on jobs in this country for goods and services that we are selling overseas. And these markets really need you.”
Pipe Dream had a chance to sit down with Christopher Fix before his talk
Pipe Dream: So, as CEO of the Dubai Mercantile Exchange (DME), can you explain a bit of what the DME does?
Christopher Fix: Basically, the DME was set up by NYMEX. The New York Mercantile Exchange in Manhattan is one of the premier commodities exchange venues, and they took a decision in 2005, 2006 to set up a sister company in Dubai with the same mission. That is to establish a pricing point for the crude flows that were being transactioned in the region of the Middle East. So they took the experience and they leveraged the knowledge they have and they established a physical crude oil delivery exchange in Dubai, and that’s the one that I run today. It’s very similar to what the NYMEX does, and what we have is a physical crude oil contract, which happens to be the largest physical delivery contract on the planet. Its mirrored off the experience of NYMEX, and it seeks to achieve the idea of pricing the trade flows from Dubai to Shanghai. The major producers of Middle Eastern crude are now in North Asian markets, and the major producers for that market is in the Middle East. So the idea of establishing an exchange there to capture that flow and establish a pricing point is exactly what the DME is set up for.
PD: So how is this unique to other exchanges and other trading companies for oil?
CF: It is unique because it is the only physical delivery contract between Tokyo and London. It exists in the actual area of the market that’s growing the most. The pricing points that do exist, like West Texas Intermediate, serves the U.S. market, and that reflects the economic trade flows inside the continental U.S. The other pricing point that is out there is called Brent, and that came up with the growth of the North Sea, and that complex evolved over the last 20 years or so. There’s not anything unique to develop the pricing point in the Middle East, which is what I do. I have a sour crude contract, which is distinct from the other two, which are light crudes. A sour crude contract in the geography that serves the market is what we do that is distinct from the other pricing points.
PD: You focus mainly on Omani crude, correct?
CF: Yeah, the Sultanate of Oman is the crude oil that we actually price and sell through the exchange. And they have about 30 million barrels a month, they’re outside of OPEC and they are also the straits of Hormuz so it is a unique opportunity for us to use the Sultan’s crude oil as an exchange-based crude.
PD: So how is working with the Omani government different than working with other oil exchanges or producers?
CF: Well, the Omanis are forward enough to know that they want to have their oil priced at a free market, transparent basis. So they are willing to allow the market to determine what the price for their crude is, month in and month out. This is a brave experiment because as your national treasure, you want to have as much control as you can over how your crude is actually distributed, so they took a leap of faith to engage with an exchange to use it. And they are the only ones in the Middle East right now to do that. For them, it’s been a very good exercise because at the end of each month, when our crude contract price is out, they know two months forward when it is delivered exactly how much revenue they are going to bring into their treasury. They can determine their cash flow economics much better, and it’s been a very good experience for them. So we are talking to other crude oil producers in the region and saying, “Listen guys, it’s working well for them and it should work for you,” and we’ve made progress on that.
PD: How does the DME stay stable in such an unstable market?
CF: I think that when you see the volatility like that, it gives you concern, of course, because the markets are in turmoil. But what we’ve seen is clearly when there was a very volatile period between July and November, there were sometimes clients who were afraid of the risk and stopped trading, so we did lose a little bit of volume. After the OPEC decision not to cut production, there was also a steep decline. So a lot of traders shied away from the market for awhile because they didn’t know where it was going to go. We have a phrase in the business: “catching a piano.” When a thing is dropping like that, you don’t want to be the last guy coming in and getting run over by the train. We say a lot of players come out of the market due to the natural volatility, but luckily they all came back. For us, we were happy that the market reacted in the way you would expect. In that, there’s scary times and a lot of uncertainty and people get cautious. But once the markets started to settle down, our traders and participants came back. That was passing a sort of test to be a valuable instrument in the good times and the bad.
PD: So how do you see this volatility affecting people around the world?
CF: I think there are a lot of elements to it. Right now we’re going into an environment where people aren’t expecting a huge price bounce back up to the high side of 100 dollars [per barrel]. But the market will adapt. Commodity markets are cyclical, and this is the thing everyone has to remember: They go up, and they come down. There are macro effects, and there are supply side dynamics, and right now we have an over supply situation that I don’t see getting alleviated anytime soon. So there’s an opportunity for some of the businesses in China to take advantage of the lower oil prices, and that lowers their manufacturing cost, and that is a net positive. It is good for the airlines, they pay less for jet fuel and people can travel much cheaper. This is a good thing for the global economy, and for the U.S. manufacturing base, it is a very good thing as well because now the price of their energy difference comes off. There’s many positive drivers around it, so for me I hope that the global economy can benefit from lower energy prices and take that step that we’ve been waiting for out of the doldrums of the 2008, 2009, 2010 slowdown. So I am hopeful to see some positive growth out of the lower oil prices.
For the Middle East, it represents a big challenge because everyone is a genius when oil is at 110 bucks. You can fund your infrastructure, you can fund your underwater shopping malls and your silly projects. When it comes down and it is half that, you now have to be a little bit smarter and tighten your belt, which I don’t see as a bad thing. Super high oil prices aren’t good for all of us, and I don’t even think it’s good for the Middle East, because it teaches you to be a bit more respectful around your reserves and your budgets. I think that’s a net positive.
PD: So do you see prices returning soon to the high rates they used to be?
CF: I wouldn’t say soon. I would say they will; there will be factors that drive oil prices higher. In this calendar year I wouldn’t expect to see any dramatic moves so we’re going to be in a situation where it tries to test certain levels, like 60 dollars. And as soon as it does, the market throws it down again, which means that the market isn’t ready for a big bull run. There is another factor, which is that there is some 120 to 130 million barrels in storage right now. So as soon as the market tries to break up, that oil is going to come out of storage and bring it down. The other thing too is that I see producers in the Middle East continue to produce more. Clearly, with a supply glut that makes it difficult for the price to rebound significantly. So I don’t see anything in the short term, but market history tells us that it will go back.