Will Murban Futures Rock OPEC’s Cohesion? – OpEd

By Faisal Faeq*

Abu Dhabi National Oil Company (ADNOC) will soon start its futures market for its flagship Murban crude, which from June 2021 will form the basis for its monthly official selling price for oil exports.

The Intercontinental Exchange plans to launch an Abu Dhabi-based exchange, on which the Murban futures contracts and related cash-settled derivatives and inter-commodity spreads will start trading by the end of this month. The first expiry month for new Murban crude futures will be June 2021.

The Murban crude forward pricing might also be used as a hedging mechanism as it will be traded in the physical spot market. However, it is not yet clear if the Murban futures contract will be a suitable tool to hedge all of the Arabian Gulf sour crude exposures, as Asian refiners and international traders need to hedge their sour crude grades from the Arabian Gulf.

Asian refiners currently struggle to have a proper hedging tool. Their basis risk is large as the quality of the Arabian Gulf sour crude grades differ from Brent and West Texas Intermediate benchmarks and are very different from Murban itself.

Furthermore, ADNOC has yet to provide details on the loading port, cargo size, quality and volume that it intends to put into this new venture.

That being said, if ADNOC is expected to continue using its reference price as the average of Dubai/Oman, there will be no need for this data, which is currently provided today by the Price Reporting Agencies (PRAs). Otherwise, Murban would be the first Arabian Gulf crude grade that will not use PRAs.

Murban is a sour crude but will be linked to the international futures price and, therefore, may not be linked solely to the Far East market. While other similar quality sour crude grades in the Arabian Gulf will continue to reflect prices of the Far East, only in distressed situations will Murban be linked to non-Asian destinations.

The thing to watch is the introduction of new players. It is important that ADNOC not give to traders the possibility of manipulation. It will be interesting to see which existing ADNOC customers will handle any possible contractual volume cuts to make space for the futures market.

Ironically, some media outlets have suggested that ADNOC letting its crude oil buyers resell on the open market is a threat to OPEC’s cohesion. It is important that after ADNOC establishes the Murban futures market, it also indicates a delivery point for the physical crude, cargo size and volume being sold freely. This will mean that it can be sold to other producers, refiners and traders.

Therefore, other Arabian Gulf producers will not be affected as they will continue to sell their crude oil with the concept of one price per enclave, contrary to what some oil news media have suggested.

More interestingly, other oil media outlets have weirdly suggested that Murban futures could make Saudi Arabia lose control of energy markets in the Middle East, perhaps forever. They have tried to leverage the current tight oil output strategy to promote such rumors.

They forgot, or pretend to have forgotten, that Saudi Arabia is the largest oil exporter, the only real swing producer and the most reliable supplier. Yet, Saudi crude oil prices are linked to international benchmarks, and Saudi Arabia does not yet have one. Saudi Arabia could have established its own benchmark a long time ago using the Arabian Light crude oil, which is the largest-produced crude oil grade of about 5 million barrels per day.

Saudi Arabia will never lose control of its energy supplies. Arabian Light crude oil is a baseload crude, so all refiners will do everything in their power to keep it. Hence, any idea insinuating that Saudi Arabia might lose control of the Arabian Gulf supplies is simply suicidal for not only refiners but for global energy security.

• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq