An oil tanker approaches the port of Fujairah, United Arab Emirates, a facility the Abu Dhabi ... [+]
Whilst the global crude markets were distracted by the Suez Canal blockage as the end of the first quarter of 2021 drew to a close, another development in the region with enormous long-term potential has not received the attention it deserves. That's the run-up to and the subsequent launch of Murban Futures.
On March 29, ICE Murban Crude Oil futures contract - the world's first futures contract predicated on the Abu Dhabi National Oil Company's (ADNOC's) flagship onshore crude oil - launched at a debut price of $63.43 per barrel.
For ADNOC itself, the move is all about more market-driven, forward-based pricing, using the new futures contract as its price marker. Unlike the London or New York-centric approaches of Brent and West Texas Intermediate (WTI), Murban futures is a benchmark in sync with a major crude production center – which makes it particularly interesting for markets, analysts and consumers alike.
Its roster of backers is an impressive one. Debut trading was launched on IntercontinentalExchange Futures Abu Dhabi backed by ADNOC, and nine of the world's largest energy traders including BP, ENEOS, GS Caltex, INPEX, PetroChina, PTT, Shell, Total and Vitol.
Keen-eyed market observers would note that the significant production and reserve levels of Murban crude put it at considerable advantage to Brent and WTI benchmarks. Murban oilfields produce upwards of 2 million barrels per day (bpd), with half of this ready for export.
Such an underpinning is crucial for any futures contract, and Murban has substantial storage facilities courtesy ADNOC. History tells us that the most useful futures contracts are those that have the largest storage capabilities. In Fujairah - the main delivery point for Murban - ADNOC is currently building underground storage caverns that will be able to hold 42 million barrels of crude, including Murban. This will strengthen the physical barrel underpinning of Murban futures.
ADNOC's decision to remove destination restrictions on the crude has also created new opportunities. Put simply, it means that anyone who buys Murban oil will be able to sell it anywhere in the world. This is expected to be a large draw for global traders and will set Murban apart from its regional competitors who have historically been shackled by restrictions.
Finally, it is worth noting that the continued demand for oil in the Asian market is likely to have significant benefits for Murban. The Middle East is a key supplier seeking to meet the rapidly changing energy needs of Asian oil importers and the introduction of a new futures contract helps make Murban more attractive to these customers. Asian refiners will now have a direct means to hedge against shifts in the price of Murban, rather than using derivatives linked to Dubai crude.
Of course, none of this is to say that there won't be challenges for Murban futures in the months to come. Previous attempts to launch a crude benchmark in the region have failed, notably DME Oman Crude Oil futures as volume became an issue. But ADNOC has a fighting chance of pulling it off unshackled by volume constraints.
An employee pauses while monitoring oil and gas flow operations in the Panorama Command Center at ... [+]
Ultimately, it might all depend on whether physical oil traders use it as a benchmark, and quality differentials are priced off it accordingly, as is the case with Brent. If physical traders form the opinion that the new benchmark is reasonably liquid, it would take liquidity away from WTI, Brent and Dubai crude.
If ADNOC is successful in that objective, it will be pretty hard to dispute that Murban futures will ultimately be a force for good or perhaps a much needed balancing factor for both the market and consumers – offering an additional transparent pricing avenue and greater choice to manage risk and clear trades.
There has been much market chatter from Murban enthusiasts pointing to the volumes involved, and the freedom with which contracts can now be traded via ICE's infrastructure. These maybe interpreted as signs that it will, over time, outshine other benchmarks to become the world's most commonly used oil price benchmark.
Whilst it is too early to conclude this for certain, we can safely assume that there will be a considerable amount of physical market interest, which may mean big things for the future.
