Murban futures aim to consolidate UAE position as global oil power, but uptake may take time

DUBAI, United Arab Emirates — Abu Dhabi’s move to launch its Murban oil futures contract this month will strengthen its position as a global oil power, but challenges over adoption remain, according to leading experts and analysts. 

The Abu Dhabi National Oil Company has confirmed that trading of the contract will begin on March 29, marking a major change in how the oil rich emirate prices its crude exports. Murban is Abu Dhabi’s flagship crude grade and makes up more than half of the UAE’s total output.

“What it does show is that Abu Dhabi and the UAE is continuing to consolidate its role as a major producer in the future,” Dan Yergin, vice chairman of IHS-Markit, told CNBC on Thursday. 

“It continues to add capacity and sees itself as a global economic hub, and it wants that reflected in the crude stream,” Yergin told CNBC’s “Capital Connection.”

After its launch was delayed by nearly a year due to regulatory hurdles, the futures contract for Murban, trading on the new ICE Futures Abu Dhabi Exchange, will let the market determine the price of Abu Dhabi’s oil and replace the less transparent retroactive pricing methods that have been used in years past.

“The announcement further cements ADNOC’s shift toward benchmarking Murban as a price setter for the Middle East crude market, particularly for light sour barrels, a plan that has been in motion for several years,” Amrita Sen, chief oil analyst at Energy Aspects said.

However, experts are divided over whether the contract will dramatically elevate the status of the grade among its rivals or expand its share in the increasingly competitive Asian markets, where 90% of Murban is sold. Abu Dhabi also thinks the futures contract can be used as a regional benchmark to price other crudes from the Gulf, but concerns around adoption remain. 

“Murban has the potential to be a significant development in the evolution of crude trading in the Middle East, but we’ll have to see how readily the market adopts the contract,” Herman Wang, managing editor of OPEC and Middle East news at S&P Global Platts, told CNBC. 

Saudi Arabia, the largest producer in the Gulf, currently uses a method linked to Omani crude futures traded on the Dubai Mercantile Exchange. Most other producers base their monthly crude price on the Dubai and Oman crude price assessments operated by S&P Global Platts. 

“In a market that tends to hold on to familiar benchmarks, even if flawed, for a long time, it is difficult to see who, beyond ADNOC, might be the first to explore this new pricing option,” Azlin Ahmad, crude oil editor at Argus Media, said in a recent research note.

“All this suggests that it may take time for Murban to gain a foothold in the pricing of Mideast Gulf crude exports, with many companies likely to take a wait-and see stance.”

While broadly optimistic, analysts say it’s going to take some time for Murban futures to gain traction and credibility, but Stuart Williams, president of ICE Futures Europe, is more confident about its future prospects.

Central to the adoption strategy is “plugging Murban into a global distribution network and making it simple for all eyes that are on Brent to also have eyes on Murban,” he told reporters at an ADNOC press conference Wednesday. 

“We’re thinking about Murban as an instrument that can be used by traders globally, and we plan to have participation right across the globe from early on,” he said.

Nine companies have already signed on as shareholders in the new futures exchange, including BP, Shell, Total and Vitol. Two of China’s biggest crude importers, including China’s largest refiner — Rongsheng — and state-run trading firm Unipec, are also looking to utilize the contract.

The UAE is the third largest producer in the OPEC group. While Murban contract trading doesn’t impact the UAE’s OPEC strategy at face value, experts warn the need for increased liquidity to support the contract might not square with any future caps on production mandated by the organization.

“How ADNOC squares this with country quotas is not abundantly clear. Bolstering liquidity requires higher volumetric production,” one UAE-based banker, speaking anonymously due to professional restrictions, told CNBC. 

“The OPEC quotas are on production, not on market supply, and hence our local and international storage can easily deal with that … if it occurs in the future,” Khaled Salmeen, executive director of ADNOC’s Downstream Industry, Marketing and Trading directorate, told the ADNOC press conference Wednesday. 

“We are committed to the current OPEC+ agreement,” Salmeen said. “We do have significant reserves in our storage … we believe that such availability of storage can deal with the forward months of any of these contracts to ensure that supply is uninterrupted.”