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Abu Dhabi wants to revolutionize the sale of Middle Eastern oil

(Bloomberg) – The dusty port of Fujairah sits between the Gulf of Oman and a rugged mountain range and is not an obvious base from which to revolutionize the Middle East’s oil markets. But on Monday, when Abu Dhabi starts selling futures contracts for its oil and then shipping the barrels out of Fujairah, it will mark an aggressive shift by the emirate. It hopes to change the way nearly a fifth of the world’s crude oil price is valued. The Persian Gulf states pump nearly 20 million barrels of oil every day, and Abu Dhabi wants the future of its flagship Murban to become the region’s most important benchmark. The region’s largest Gulf manufacturers – including Saudi Arabia, Iraq and the United Arab Emirates, whose capital is Abu Dhabi – have traditionally rated their barrels using benchmarks from other regions. Most of their crude oil has been sold directly to refineries or international companies with stakes in their fields. Crucially, they prevented these customers from reselling the oil and taking advantage of arbitrage opportunities in the energy markets. Now Abu Dhabi is removing those curbs with the aim of opening its oil to both financial and physical traders. Investors worldwide are demanding commodities because of their high returns compared to other assets and to protect themselves from rising inflation. As soon as Murban is sold on an exchange, it will be pipelined to Fujairah, where Abu Dhabi’s desert fields are physically connected to global markets. “If this succeeds – and I think the odds are good – Murban futures could be a defining moment for crude oil prices in the Middle East, “said Vandana Hari, founder of Vanda Insights in Singapore, which provides oil analysis. If “a significant portion of Middle East crude is freely traded on the spot market,” it could lead other regional producers to follow Abu Dhabi’s lead, she said. invests around $ 900 million in the construction of 40 million barrels of storage space in caves under the mountains of Fujairah. That, and the tanks Adnoc already has in port, will ensure there is enough murban available to handle future supply disruptions, Khaled Salmeen, the company’s marketing and trade director, told reporters earlier this month. Adnoc can pump about 2 million barrels a year from Murban every day and is committed to providing half that amount to exchanges over the next year – in line with or above offerings from today’s major oil benchmarks like Brent and West Texas Intermediate . Liquidity is “critical to the whole equation”. said Chris Bake, a director of Vitol Group, the largest independent oil trader backing the exchange. It will hardly be easy to create a new benchmark. Oil traders don’t like change, especially if they believe the markets are already doing a good job balancing supply and demand. S&P Global Platts caused a stir this year after it announced it would overtake Dated Brent, the world’s top crude oil price. It was forced to postpone the plan indefinitely. Murban will also face competition regionally. Platts publishes price ratings for oil from Dubai and the Dubai Mercantile Exchange trades futures for crude oil from Oman. Both serve as a benchmark for Middle Eastern shipments to Asia.Enter GoldmanThe benefits of trading murban, a crude oil first exported in 1963, are worth the effort, according to Sultan Al Jaber, chief executive officer of Adnoc. “Through price transparency, our customers can better hedge and control their market risks,” he wrote on Sunday in The National, a local newspaper. Bu 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 the stock market. Philippe Khoury, a former HSBC Holdings Plc energy banker whom Adnoc hired to build its trading operations in 2018, said Murban could even compete with Brent and WTI. The futures platform is operated by Intercontinental Exchange Inc. based in Atlanta and is called ICE Futures Abu Dhabi. Last week, ICE approved Goldman Sachs Group Inc., Citigroup Inc. and 22 other banks and brokers as exchange members. Wider AmbitionAdnoc’s plan underscores the UAE’s broader drive to monetize its hydrocarbon resources faster in the event that oil demand declines with the global shift towards greener energy. The country aims to increase production capacity from the current 4 million barrels per day to 5 million barrels by 2030. That would make it OPEC’s largest producer after Saudi Arabia. The murban exchange and the increase in capacity could increase tensions within the organization of the oil-exporting countries. after Hari from Vanda Insights. The Gulf States dominate the cartel and tend to extol unity. They also started unprecedented production cuts last year to prop up prices as the coronavirus pandemic spread. Still, the UAE says murban futures will not affect OPEC or its ability to stabilize oil prices. “We definitely hope” that other regional producers use murban as a benchmark Adnocs Khoury said at the Fujairah Bunkering & Fuel Oil Forum this month. For more articles like this, please visit us at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP

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