The Dubai Mercantile Exchange launched its Oman crude futures on Friday, going head to head with rival IntercontinentalExchange (ICE) in the competition for the dominant Middle East sour crude contract.

At stake is a market linked to the region's supply of more than 30 percent of the world's 85 million barrels per day of crude.

Backed by the US New York Mercantile Exchange (Nymex), the DME goes live with Oman futures less than two weeks after the Atlanta-based ICE launched trade in its own sour crude contract. A month's delay for the DME allowed the ICE  to make a head start on May 21.

The DME enters the fray boosted by the backing of two Middle East producers. Dubai's government on Wednesday said it will use the contract to price its crude exports, following the lead of Oman.

Both governments hold a stake in the DME. No previous crude contract has had backing from any of the region's producers.

Several previous attempts to tap the sour market have failed. Despite the later start, the DME says it is confident its contract will succeed, and that the fierce competition underscores the size of the potential market.

"This just confirms the original premise behind what we're doing," the DME's Chief Executive Gary King told Reuters ahead of the launch.

Oman futures began trade at 0200 Dubai time on June 1 (2200 GMT on May 31) with a first trade on the second month September contract at $65.00/bbl less than ten minutes after trading opened. The contract later traded at $64.01.

The frontmonth August contract first traded at 2235 GMT at $64.70. It later fell to $64.30 before climbing to $64.90.

The ICE Dubai contract, which went live on May 21 also started trading within the first hour of its launch. It registered trade of just over 2,000 lots on its debut.

The first trades for Oman futures left the contract some 40-70 cents a barrel above Dubai as traded on rival ICE. Oman crude is usually seen as commanding a quality premium to Dubai.

August Dubai settled at $63.91 on ICE on Thursday. The sour market is the latest arena for the competition between Nymex and ICE, better known for their rival sweet or low-sulphur crude contracts. Nymex hosts the US benchmark, while the ICE hosts the European marker.

The main challenge both face with their sour contracts is establishing enough trade for investors to enter and exit the market quickly and easily. The ICE has already made a better start with its Dubai contract than previous attempts at sour crude launches, with volume steadily increasing.

The Dubai exchange is new but has built up a long list of members ahead of the launch. For a list of DME members click on.

The DME will market special trade rates in the first three months to boost volume. Some analysts and dealers have said only one sour crude contract could succeed, although two of the top energy trading houses Vitol and Koch have said they will deal in both.

The jackpot for either exchange would be a move by the world's top exporter Saudi Arabia to use one of the sour crude contracts for pricing. The kingdom has shown limited interest.

The DME offers settlement against physical delivery of Oman crude, similar to Nymex's benchmark US crude contract.

Some traders are more comfortable with the link to the physical market. Oman is also a larger crude stream, with production of over 700,000 barrels per day (bpd). Others have said that investment funds would be suspicious of physical delivery until they see how it works.

The ICE is settled in cash, based on published prices of physical trade in dwindling Dubai crude. Output of Dubai is down to less than 100,000 barrels per day, and some traders say it is no longer viable for pricing.

Dubai's state-owned Tatweer and the Nymex each own a 32.5 percent stake in the DME. The Oman government has 30 percent and the remaining 5 percent stake