Abu Dhabi is preparing to shake up the way its oil is traded, creating a new benchmark to rival the likes of Brent and WTI as part of a modernisation drive at the conservative national producer Adnoc.
The Abu Dhabi National Oil Company will for the first time start trading futures contracts of its flagship Murban crude oil next year on an international exchange, as part of a radical overhaul that is intended to maximise revenue from the emirate’s main natural resource.
People briefed on the move said Adnoc was close to choosing Intercontinental Exchange, or ICE, as the home for these futures. Adnoc declined to comment. ICE did not reply to a request for comment.
Adnoc’s move “will provide the markets with greater confidence and solidify Abu Dhabi’s position as a global energy hub and an essential energy provider to the world, particularly the fast-growing markets in Asia,” Sheikh Mohammed bin Zayed al-Nahyan, the crown prince of Abu Dhabi, said in a statement.
The new Murban crude futures contract will also compete with the Dubai/Oman benchmark, which is operated by Dubai Mercantile Exchange using a platform provided by the Chicago Mercantile Exchange.
Most Middle East oil producers base their oil prices on the rates in the futures market, but for decades Adnoc has taken a different path, using a retroactive pricing system for its direct sales to customers, which are mainly in Asia.
Rather than being told the price at which they will lift their cargoes at the end of each month, in future the price will be set by market through the derivatives contract. Destination restrictions will be removed from Murban crude, allowing it to be freely traded.
This new initiative “will enable our customers and other market participants to better price, manage and trade their purchases of Murban”, said Sultan Al Jaber, Adnoc’s chief executive.
Adnoc produces around 1.7m barrels a day of Murban, a light crude grade, a significant amount of which is exported from Fujairah through the Gulf of Oman. Abu Dhabi’s overall production stands at around 3m barrels a day.
At a meeting of the emirate’s senior oil decision-making body on Monday, Adnoc also revealed increases in its oil and gas reserves, lifting the United Arab Emirates from seventh to sixth in the global ranking of countries’ hydrocarbon reserves.
Adnoc has expanded its portfolio of international upstream projects, brought European oil companies ENI and OMV into a refining and trading partnership, lured investment from private equity firms into its pipeline infrastructure and floated a stake in its distribution unit.
Abu Dhabi, the capital of the UAE, has sought to cut costs since oil prices collapsed in 2014 and caused a period of low economic growth.