Intercontinental Exchange Inc said that oil majors including BP, Total and Shell would be partners in a new exchange it is launching in the United Arab Emirates next year to list Abu Dhabi National Oil Co’s (ADNOC) flagship Murban crude grade.
The Murban futures contract, to be hosted on the new ICE Futures Abu Dhabi (IFAD), would replace retroactive pricing, allowing buyers to hedge risks and capture more value from ADNOC’s oil output, CEO Sultan al-Jaber told an energy forum in the United Arab Emirates capital Abu Dhabi.
BP, Total, Inpex, Vitol, Shell, Petrochina, Korea’s GS Caltex, Japan’s JXTG and Thailand’s PTT agreed to become partners in the new exchange, ICE chairman and CEO Jeffrey Sprecher told a news conference at the event.
ADNOC would also be a founder.
Abu Dhabi’s Supreme Petroleum Council last week approved the launch of a new pricing mechanism for Murban crude as part of ADNOC’s broader transformation strategy. It authorised the state energy firm to remove destination restrictions on Murban sales.
Intercontinental Exchange said IFAD, established in the Abu Dhabi Global Market, and clearing house ICE Clear Europe, are working on regulatory approvals, with the aim of launching in the first half of 2020.
“Murban futures will sit alongside the most significant global oil benchmarks, providing the opportunity for the first time for a much larger group of participants to trade and hedge Murban in a regulated, transparent and accessible venue,” Sprecher said in a statement published on Monday.
Long seen as one of the most conservative oil firms in the Middle East, ADNOC has been overhauling its trading operations to capture added value and adapt to market changes.
“It’s a revolution for ADNOC. Each of those partners on the podium will put money into the new exchange and that would bring in liquidity,” a source familiar with the matter told Reuters.
The new pricing system will allow ADNOC customers to know what they are paying in advance, rather than waiting for about two months to find out the price of oil they have already received under the current retroactive pricing system.
“Murban accounts for 50 per cent of UAE total crude oil production and is globally recognised and acknowledged as a special type of crude for its quality and reliability of supply,” Jaber told the news conference.
“Now of course given the significant flows of Murban into Asia we believe the oil market is very ready for a more geographically relevant market.”
The Murban contract will also create an alternative benchmark to the most commonly used Middle East standard, the Dubai and Oman benchmark operated by the Dubai Mercantile Exchange (DME) and traded on CME’s electronic platform.
Oman’s oil minister said the UAE initiative would be good for the oil market and would not compete with the DME contract.
“I don’t think so, it is a different type of crude, their market is different. I don’t see a direct impact,” Mohammed bin Hamad al-Rumhy told reporters at the energy forum in Abu Dhabi.
Murban light crude output is around 1.6-1.7 million barrels per day. The UAE has traditionally sold oil directly to end-users, mainly in Asia, based on retroactive pricing rather than the forward pricing used by Saudi Arabia, Kuwait and Iraq.
The UAE, the third-largest oil producer in the Organisation of the Petroleum Exporting Countries (OPEC) behind Saudi Arabia and Iraq, pumps around 3 million bpd, produced mostly by ADNOC.
Jaber said the UAE was on track to expand production capacity to 4 million bpd by the end of 2020.