UPDATE 5-ICE Dubai oil futures open new exchange battlefront

(Updates with closing price, volume, edits, paragraphs 7, 9-10)

By Simon Webb and Jonathan Leff

DUBAI/SINGAPORE, May 21 (Reuters) - The ICE's (ICE.N) new Dubai sour crude oil futures saw modest trade on their Monday debut as battle commenced between it and the New York Mercantile Exchange (NYMEX) for the dominant Middle East contract.

Atlanta-based IntercontinentalExchange, which hosts Europe's benchmark Brent crude contract, gained an 11-day head start over its NYMEX NMX.N rival with the launch of a high-sulphur crude contract.

The Dubai Mercantile Exchange (DME), a joint-venture between NYMEX, Dubai and Oman, plans to launch its Oman futures contract on June 1.

The world's two top energy exchanges are racing to build trading volume behind their new contracts. The ICE is counting on an entrenched price system and well-established platform while the DME hopes to tap a desire for change and is eyeing a growing number of regional investors.

Both are hoping to capitalise on rising supplies of high-sulphur crude from the Middle East, increasing Asian oil consumption and demand for better risk-management tools.

Several past efforts to establish a vibrant sour crude futures market have failed.[ID:nL19431827]

The front-month August ICE Dubai contract MIDc1 closed at $67.01 a barrel with 1,008 lots traded, Reuters data showed. The first four contract months had traded 2,013 lots, equivalent to more than 2 million barrels.

With expectations set low, given flat starts for other sour crude contracts, opinion was divided over how well the contract was doing.

"I'd hoped that we would see 3,000 lots on the first day," said Rob Laughlin, an oil broker at Man Financial.

Laughlin said investor confidence in the contract could be measured on whether or not volume increased over coming sessions.

Some traders said volume was more than they expected. The Dubai contract got a better start than the most recent sour contract, NYMEX's Russian export blend, which has seen almost no trade since its launch last October RCc1.

Another trader said the activity so far may have been the result of trading incentives offered by ICE, and it would be weeks before the success of the contract could be measured.

The Middle East supplies over 30 percent of the world's oil, most of it sour and much of it priced against Dubai. But traders in Asia, which buys most of the Middle East's oil, tend to be conservative with new contracts.

"Our customers are not so aggressive... we will not start trading right away," said Kentaro Obata, managing director of Astmax, one of Japan's biggest commodities investment funds.

"For us it's important to see the liquidity grow after the launch date," he said.

ASSESSMENT VS PHYSICAL

ICE Dubai is settled against the Platts pricing system, which is the benchmark for Middle East crude exports to Asia, accounting for nearly one-sixth of the world's oil.

ICE also has the advantage that its Brent futures LCOc1 are used as part of a liquid market for Brent/Dubai swaps.

But some traders say Dubai is no longer a viable crude to use for pricing, as output has dwindled to less than 100,000 barrels per day.

The DME, a new exchange, is hoping that discontent with the status quo will encourage traders to use its Oman contract.

The DME offers settlement against physical delivery of the crude, similar to NYMEX's benchmark U.S. crude contract CLc1. It is the first sour crude contract to be backed by a Middle East producer, as Oman has said it will use the DME to price its exports.

"I think DME will see a bit more action as they claim they have signed up a huge number of market makers," said a Singapore-based crude trader.

The DME has spent some two years building interest in the contract and liaising with members.

(To see a list of DME members, click on [ID:n19205530]

The ultimate measure of a contract's success is likely to be determined in Riyadh. A move by top exporter Saudi Arabia to use one of the exchanges, instead of the current system of published Dubai and Oman prices, would likely generate more trade volume.

While it has shown limited interest so far, Saudi Arabia has changed its pricing markers in the past when more liquid benchmarks emerged. It uses WTI and Brent futures for U.S. and European prices. (Additional reporting by Maryelle Demongeot in Singapore and Randy Fabi in London)