Murban futures aim to cement the UAE’s position as a global oil power

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The flags of the United Arab Emirates and the Abu Dhabi National Oil Company are located at the reception in the lobby of the company’s headquarters in Abu Dhabi, United Arab Emirates.

Christopher Pike | Bloomberg | Getty Images

DUBAI, United Arab Emirates – Abu Dhabi’s move to launch its Murban oil futures contract this month will strengthen its position as a global oil power, but the challenges of the takeover remain, according to leading experts and analysts.

The Abu Dhabi National Oil Company has confirmed that trading on the contract will begin on March 29, which is a major change in the way the oil-rich emirate values ​​its crude oil exports. Murban is Abu Dhabi’s flagship crude oil and accounts for more than half of the UAE’s total production.

“It shows that Abu Dhabi and the UAE will continue to consolidate their role as major producers in the future,” Dan Yergin, deputy chairman of IHS-Markit, told CNBC on Thursday.

“It continues to expand its capacities and sees itself as a global economic center. It would like this to be reflected in the crude oil flow,” Yergin told CNBC’s “Capital Connection”.

Bigger impact

After the introduction was delayed by almost a year due to regulatory hurdles, the futures contract for Murban, which is traded on the new ICE Futures Abu Dhabi Exchange, will let the market determine the price of Abu Dhabi’s oil and the less transparent retrospective pricing methods replacements have been used in previous years.

“The announcement confirms ADNOC’s shift towards benchmarking Murban as a price setter for the Middle East crude oil market, particularly mildly acidic kegs, a plan that has been in place for several years,” said Amrita Sen, chief oil analyst at Energy Aspects .

It may take Murban some time to gain a foothold in the pricing of crude oil exports from the Middle East Gulf. Many companies will likely wait and see.

Azlin Ahmad |

Argus Media crude oil editor

However, experts disagree on whether the contract will dramatically improve the class’s status among its rivals or expand its share of the increasingly competitive Asian markets, where 90% of Murban is sold. Abu Dhabi also believes the futures contract can be used as a regional benchmark for pricing other commodities from the Gulf, but concerns about its introduction remain.

“Murban has the potential to be a major development in the development of crude oil trading in the Middle East, but we have to see how quickly the market accepts the deal,” said Herman Wang, managing editor for OPEC and Middle East news at S & P. Global Platts, said CNBC.

“It may take some time”

Saudi Arabia, the largest producer in the Gulf, is currently using a method linked to crude oil futures from Oman traded on the Dubai Mercantile Exchange. Most other manufacturers base their monthly crude oil price on crude oil price assessments for Dubai and Oman carried out by S&P Global Platts.

“In a market that tends to stick to well-known benchmarks for a long time, even if they are flawed, it is difficult to see who is the first to explore this new pricing option beyond ADNOC,” said Azlin Ahmad, crude oil editor at Argus Media in a recent research report.

“All of this suggests that it may take Murban some time to gain a foothold in pricing crude oil exports from the Gulf of the Middle East. Many companies will likely wait.”

Analysts, while broadly optimistic, say it will take some time for Murban futures to gain traction and credibility, but Stuart Williams, President of ICE Futures Europe, is more confident about its future prospects.

The focus of the adoption strategy is “to integrate Murban into a global distribution network and to make it easy for all eyes on Brent to keep an eye on Murban,” he told reporters at an ADNOC press conference on Wednesday.

“We think of murban as a tool that can be used by dealers worldwide and we plan to participate globally from the start,” he said.

Nine companies, including BP, Shell, Total and Vitol, have already registered as shareholders on the new futures exchange. Two of China’s largest crude oil importers, including China’s largest refiner – Rongsheng – and state-owned trading company Unipec, also want to take advantage of the deal.

OPEC dynamics

The UAE is the third largest manufacturer in the OPEC group. While trading Murban contracts does not affect the UAE’s OPEC strategy at face value, experts warn that increased liquidity in support of the contract may not be compatible with future production caps imposed by the organization.

“How ADNOC balances this with country quotas is not entirely clear. Strengthening liquidity requires higher volumetric production,” a UAE banker, who spoke anonymously due to job restrictions, told CNBC.

“OPEC quotas are based on production, not market supply, so our local and international warehouses can easily handle them … if that happens in the future,” said Khaled Salmeen, executive director of ADNOC’s Downstream Industry Directorate , Marketing and Commerce the ADNOC press conference on Wednesday.

“We are committed to the current OPEC + agreement,” said Salmeen. “We have significant reserves in our warehouse … we believe such stock availability can handle the previous months of any of these contracts to ensure delivery is not interrupted.”