Abu Dhabi wants its Murban crude to compare Middle East oil prices

Nestled between the Gulf of Oman and a rugged mountain range, the dusty port of Fujairah is not an obvious base for trying to revolutionize the Middle Eastern oil markets, according to World Oil.

But on Monday, when Abu Dhabi starts selling its oil futures and then shipping the barrels to Fujairah, it will mark an aggressive turn for the emirate. He hopes to change the way nearly a fifth of the world’s crude is priced.

The Arab Gulf states pump nearly 20 million barrels of oil per day and Abu Dhabi wants the future of its flagship Murban quality to become the main benchmark in the region.

The biggest producers in the Gulf – notably Saudi Arabia, Iraq, and the United Arab Emirates, of which Abu Dhabi is the capital – have traditionally set the price of their barrels on the basis of benchmarks from other regions. They mainly sold their crude directly to refiners or to international companies with interests in their fields. Above all, they have prevented these customers from reselling the oil and taking advantage of the arbitrage opportunities that exist in the global energy markets.

Today, Abu Dhabi is removing those brakes with the aim of opening up its oil to financial and physical traders. Investors around the world are clamoring for commodities because of their high yields relative to other assets and to protect against any rise in inflation.

Once sold on an exchange, Murban will be piped to Fujairah, where Abu Dhabi’s desert fields physically connect to global markets.

“If successful – and I think the odds are good – Murban futures could be a pivotal moment for crude pricing in the Middle East,” said Vandana Hari, founder of oil consultancy firm Vanda Insights. , based in Singapore. If “a significant portion of Middle Eastern crude is traded freely in the spot market,” it could push other regional producers to follow Abu Dhabi’s lead, she said.

To help its cause, Abu Dhabi National Oil Co., the state-owned energy company, is spending around $ 900 million to build 40 million barrels of storage space in caves under the mountains of Fujairah. That, and the tanks that ADNOC already has at the port, will ensure that there are plenty of Murban on hand to handle any future supply disruptions, said Khaled Salmeen, the company’s head of marketing and commerce. , this month.

ADNOC can pump around 2 million barrels per day from Murban and has pledged to provide the exchange with half that amount over the next year – in line with or more than the supply of current major oil benchmarks such as Brent and West Texas Intermediate.

Liquidity is “key to the whole equation,” said Chris Bake, director of Vitol Group, the largest independent oil trader, which backs the exchange.

Creating a new benchmark will not be easy. Oil traders don’t like change, especially when they believe the markets are already doing a good job of matching supply and demand. S&P Global Platts sparked an uproar this year after announcing it would revise Dated Brent, the world’s leading price for crude. He was forced to put the plan on hold indefinitely.

Murban will also face competition at the regional level. Platts publishes assessments of Dubai oil prices and the Dubai Mercantile Exchange trades Omani crude futures contracts. Both serve as a benchmark for shipments from the Middle East to Asia.

Yet Abu Dhabi says the combination of high supply, easy access to Fujairah’s oil-consuming markets, and the absence of trade restrictions will attract many buyers to its exchange. Philippe Khoury, a former HSBC Holdings Plc energy banker hired by ADNOC in 2018 to expand its trading operations, said Murban could even compete with Brent and WTI.

The futures platform will be managed by Atlanta-based Intercontinental Exchange Inc. called ICE Futures Abu Dhabi. Last week, the ICE approved Goldman Sachs Group Inc., Citigroup Inc., and 22 other banks and brokers as members of the exchange.

ADNOC’s plan underscores the UAE’s broader ambition to more quickly monetize its hydrocarbon resources in the event that demand for oil begins to decline with the global shift to greener energy. The country aims to increase its production capacity from around 4 million barrels per day currently to 5 million by 2030, which would make it OPEC’s largest producer after Saudi Arabia.

The Murban exchange and increased capacity could increase tensions within the Organization of the Petroleum Exporting Countries, according to Vanda Insights’ Hari. The Gulf States dominate the cartel and tend to favor unity. They also began unprecedented production cuts last year to support prices as the coronavirus pandemic spread.

Still, the UAE says Murban’s futures will not affect OPEC or its ability to stabilize oil prices.

“We really hope” that other regional producers will adopt Murban as a benchmark for their own crude, ADNOC’s Khoury told the Fujairah Bunkering & Fuel Oil Forum this month.