Top oil traders upbeat over launch of UAE's planned Murban futures contract

London — The planned launch of a futures contract for the UAE's Murban crude in Abu Dhabi next year will provide a welcome boost to liquidity and trading opportunities in the global oil market and does not threaten the dominance of the main Brent crude benchmark, top independent oil traders said Oct. 15.

The Intercontinental Exchange said Oct. 12 it plans to launch Murban crude futures trading at an exchange in Abu Dhabi in the first quarter of 2021, after it delayed the startup in the first half of 2020 due to the coronavirus pandemic.

"We're quite excited about the launch and we're looking forward to being able to trade that market...it's a massive step to go from retroactive OSP pricing a year ago to a futures market with forward looking pricing," Vitol CEO Russell Hardy told the Energy Intelligence Forum.

Vitol, the world's biggest independent oil trader, is one of the partners behind the new IFAD (ICE Futures Abu Dhabi) exchange set to open in Abu Dhabi and last year the trader sold a 10% stake in its oil storage arm VTTI, which has facilities in Fujairah, to ADNOC.

"This is fantastic news for the Eastern [oil] market, but I don't think it impacts the Western markets, I don't think it poses a threat to Brent," Hardy said.

Most Middle Eastern oil sold to Asia is priced based on the Platts Dubai benchmark, either by itself or alongside Platts Oman or DME Oman, and the new contract will create an alternative Middle East price benchmark.

When launched, the Murban futures contract is largely expected to be used as the baseline for setting official selling prices for ADNOC's four crude grades every month. Presently, it issues OSPs as differentials against Platts front-month Dubai crude assessments, a practice it first began in March this year.

Arbitrage opportunities

Also speaking at the event, the head of Trafigura, Jeremy Weir said the new contract was something his trading house "will very much support."

"I think it's a very good initiative, I think it creates transparency," Weir said. "You're going to provide liquidity on the curve for this particular grade but also arbitrage opportunities and maybe priced opportunities of other crudes off this curve."

Weir's comments were echoed by Torbjorn Tornquist, head of trader Gunvor.

"Will it replace anything else? No, but I think it can actually increase liquidity for all benchmarks because you tie them together through various arbitrage, and it improves the good arbitrage trading," he said.

Murban, produced onshore in Abu Dhabi, has a total production of approximately 1.7 million b/d, most of which is exported, largely to Asia, with Abu Dhabi retaining the balance for domestic refining. The crude, with a gravity of 40.5 API and sulfur content of 0.78%, is considered light sour by Asian refiners.

Murban will be the second physically delivered futures contracts traded on a regional exchange after Dubai Mercantile Exchange's Oman crude futures. Murban is also a deliverable grade in the Platts benchmark Dubai and Oman crude assessments.