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UAE to overhaul how it prices all crude oil after big swings
Iran war has made oil pricing highly volatile
Processing tanks at the Ruwais refinery and petrochemical complex in Al Ruwais, UAE. (Christophe Viseux/Bloomberg)
Key Takeaways:
- Abu Dhabi National Oil Co. said all onshore and offshore crude grades will use Platts’ Dubai benchmark from Nov. 1 instead of Murban futures.
- The change follows volatility during the Iran war that disrupted regional crude pricing and pushed Murban futures above $160 a barrel at one point.
- ICE will suspend Murban futures without open interest immediately and phase out remaining contracts as trading shifts toward its Dubai benchmark.
Abu Dhabi National Oil Co., the UAE’s state oil company, said it would change how it prices its crude oil grades, months after wild swings in the benchmark it has been using to underpin its sales.
From Nov. 1, all Adnoc onshore and offshore crudes will price using a regional Dubai benchmark published by Platts, rather than ICE Futures Abu Dhabi contract that started in 2021. It also means pricing will be announced in the month prior to loading, rather than two months ahead. Bloomberg reported earlier this month that Adnoc had talked about making the switch for offshore grades, but the July 31 statement goes further.
Middle Eastern oil pricing has been a major pinch point during the Iran war. The intermittent disruption to crude flows through the Strait of Hormuz has meant that prices have been hugely volatile, while some traders amassed large positions in regional benchmarks, adding to the bigger price swings.
The move will bring the UAE more in line with other regional producers, like Saudi Arabia, and is significant for Asian oil refiners that usually dominate buying of the country’s barrels. Since the war began, Adnoc has been selling large volumes of its barrels in tenders as it shuttles supplies out of Hormuz.
“The new pricing mechanism reinforces Adnoc’s commitment to pricing transparency for its growing customer and investor base,” the company said in a statement.
At one point in March, the Murban futures contract used to underpin Adnoc’s prices was trading north of $160 a barrel as supplies in the region were hit. Brent futures have peaked this year at $126 a barrel, though the physical Dated Brent benchmark topped $140.
Highly volatile regional pricing hasn’t just centered on oil. One of the world’s top commodity traders has embarked on a court case around the main shipping rate in and out of the region, arguing it has become distorted.
ICE said in a circular that it would suspend all Murban futures contracts with no open interest immediately. It added that contracts with open interest would cease trading either when they expire or when they no longer have any open interest. Traders will still be allowed to deliver barrels at expiry for those contracts that continue to trade.
It means a marker that launched in 2021 — but years in the making — will effectively shut down after just a few years trading.
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ICE President Ben Jackson said on the company’s earnings call on July 30 that it had seen a shift away from the Murban contract towards its Dubai marker, which is more actively traded. ICE said in its circular that it would meet the needs of customers currently trading Murban futures with its Dubai contracts instead.
“We have seen a combination of more risks to be managed, but concerns around doing so with a physically settled contract as a result of uncertainties with the closure of the Strait of Hormuz,” Jackson said.
Platts is part of S&P Global Inc.
