Abu Dhabi, UAEFriday 22 November 2019

Murban's listing gives Abu Dhabi more flexibility to trade crude, energy minister says

Suhail Al Mazrouei says talk about Opec deepening production cuts is premature

UAE energy minister Suhail Al Mazrouei said Murban was a more stable resource to price crude compared with the more widely-used Brent. Khushnum Bhandari for The National
UAE energy minister Suhail Al Mazrouei said Murban was a more stable resource to price crude compared with the more widely-used Brent. Khushnum Bhandari for The National

Abu Dhabi’s decision to float its Murban grade of crude on a futures exchange will allow the UAE more flexibility in how it prices and trades its oil, according to the UAE's energy minister.

“We’ll wait and see,” Suhail Al Mazrouei said when asked if he saw Murban being adopted as a potential regional benchmark.

“It’s a major quantity, it’s more stable in terms of the reserves that we have and it is way beyond what is required in many benchmarks, which are very well known," he told reporters in Abu Dhabi.

On Monday, Abu Dhabi National Oil Company received the green light from the emirate's Supreme Petroleum Council to list Murban on an international exchange, as it looks to change the way it currently prices and trades crude. Murban is Abu Dhabi's flagship crude grade, which flows at approximately 1.7 million barrels per day. The company currently uses a retroactive pricing mechanism for crude.

The forward pricing mechanism on Murban crude will be implemented between the second and third quarters of 2020.

The SPC also lifted restrictions on destinations for the sale of Murban crude. Brent is the most widely-used benchmark for crude and is based on production from the North Sea, which is currently in decline. Around two-thirds of all crude contracts globally reference Brent. In the Middle East, Saudi Arabia, the world's largest oil exporter, uses the Oman crude price quoted on the Dubai Mercantile Exchange.

DME is a joint venture between the world’s largest futures exchange, CME Group, and Dubai Holding, Oman Investment Fund and a number of big banks and oil companies. It is based in the Dubai International Financial Centre.

"Murban as a quantity is more than Brent, more than DME and more than other benchmarks and it is positive that we decided to do it," said Mr Al Mazrouei.

"The forward-looking futures [will] also help us with flexibility. I think all of those are good indicators, it means that Adnoc and the team at Adnoc are looking at the full value chain," he added.

Through its membership of Opec, the UAE is also party to a wider agreement that is curtailing 1.2 million barrels per day of production since January, with the pact expected to hold until March 2020. Opec's overall production is expected to decline by 7 per cent by 2024, the group noted in its annual World Oil Outlook on Tuesday.

Rising production from the US and the changing global narrative on fossil fuels are among the reasons for lower demand growth for crude, with the US-China trade war and a slowing economy also driving down appetite. Organisations such as the International Energy Agency have repeatedly revised down demand growth for crude, with the Paris-based entity shaving off 100,000 bpd from its projection for this year and next. Mr Al Mazrouei said it was "premature" for Opec+, which also includes Russia and non-member sovereign producers, to consider deepening cuts.

"I’m encouraged that the level of conformity is increasing and it is premature to jump to any conclusion yet," he said.

Brent futures were down 0.62 per cent and were trading at $62.57 per barrel at 5.10pm UAE time, while West Texas Intermediate, which largely tracks North American crude grades was down 0.37 per cent at $57.02 per barrel.

Updated: November 7, 2019 08:02 AM

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