November 4, 2019 / 11:21 AM / 17 days ago

Abu Dhabi approves new pricing mechanism for ADNOC's Murban crude

DUBAI (Reuters) - Abu Dhabi’s Supreme Petroleum Council (SPC) approved on Monday the launch of a new pricing mechanism for Abu Dhabi National Oil Co’s (ADNOC) flagship Murban crude, ADNOC said, part of the state energy company’s broader transformation strategy.

FILE PHOTO: A visitor walks past the logo of ADNOC at the 24th World Energy Congress in Abu Dhabi, United Arab Emirates September 10, 2019. REUTERS/Satish Kumar/File Photo

ADNOC is seeking to emulate the success of rival oil majors and bolster its regional influence.

The SPC, Abu Dhabi’s highest governing body for the oil and gas industry, also announced a rise in the UAE’s oil and gas reserves, ADNOC said in a statement.

ADNOC’s Murban crude would be listed as a futures contract on an internationally recognized exchange and ADNOC will engage with customers and other stakeholders in coming months for the implementation of its new forward pricing mechanism, it said.

ADNOC said it expected to implement its new Murban crude forward pricing mechanism between the second and third quarters of 2020, adding that Monday’s approval also included the lifting of destination restrictions on ADNOC’s sales of Murban.

“The forward-looking decision ... to list Murban on an internationally recognized exchange and improve the terms of sale of ADNOC’s Murban crude, is another significant step in our transformation,” ADNOC’s CEO Sultan al-Jaber said.

“The initiative will enable our customers and other market participants to better price, manage and trade their purchases of Murban.”

The Murban contract will create an alternative benchmark to the most commonly used Middle East standard, the Dubai/Oman benchmark operated by the Dubai Mercantile Exchange and traded on CME’s electronic platform.

“The (Murban) futures contract will be traded on an independent and regulated exchange and is expected to demonstrate a highly liquid forward price curve, given the market appetite for Middle East crude,” ADNOC said.

Murban light crude production is around 1.6-1.7 million barrels per day, and is exported from Fujairah on the Gulf of Oman.

For many years the UAE has traditionally sold oil directly to end-users, mainly in Asia, based on retroactive pricing rather than the forward pricing used by Saudi Arabia, Kuwait and Iraq.

Most Middle Eastern grades, including those of Saudi Arabia, are priced off the Dubai/Oman benchmark for Asian exports, off Brent-related indices for European exports and U.S. indices for U.S. shipments.

The world’s long-established top benchmarks, Brent crude and West Texas Intermediate, also deal in light crude, and trade at vast volumes.

HIGHER RESERVES

During the SPC’s meeting on Monday, which was presided over by Abu Dhabi Crown Prince Mohammed bin Zayed, the council also announced a significant increase in oil and gas reserves as well as new gas discoveries in the emirate of Abu Dhabi.

The boost would move the UAE to sixth place in the global rankings for oil and gas reserves with 105 billion stock tank barrels of recoverable oil and 273 trillion standard cubic feet of conventional gas, ADNOC said.

The UAE, the third-largest oil producer in the Organization of the Petroleum Exporting Countries behind Saudi Arabia and Iraq, pumps around 3 million barrels per day, produced mostly by Abu Dhabi-based ADNOC.

Reporting by Rania El Gamal; Editing by Dale Hudson and Louise Heavens

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