ADNOC-ICE Murban futures launch delayed to H2 2020 amid regulatory hurdles: sources

Singapore — The widely anticipated launch of a suite of Murban futures contracts by UAE's ADNOC in partnership with the Intercontinental Exchange and a host of market players has been delayed beyond its expected H1 2020 kick-off due to regulatory hurdles, sources close to the matter told S&P Global Platts.

Several industry sources in Singapore and London confirmed that the launch, announced in late 2019, would likely be pushed out to the second half of the year, with some citing August as a possibility.

The delay is largely due to garnering sufficient jurisdiction for trading counterparties based in various global centers for physical and derivative crude oil trading beyond ICE's UK operations, according to the sources.

The new contract will straddle several geographies in the process of derivative trading, clearing, settlement and physical delivery of the light sour grade.

"ICE is in active discussions with regulators about the approvals needed to ensure firms located in key jurisdictions including the UK, US and Singapore can access futures contracts traded on IFAD from launch," said an ICE spokeswoman on the subject.

ADNOC declined to comment on the matter.

The two entities first announced plans to start a derivatives trading platform in November 2019, to be hosted on a new Abu Dhabi exchange in partnership with nine international energy companies. The exchange, called ICE Futures Abu Dhabi (IFAD), received regulatory approval from the Abu Dhabi Supreme Petroleum Council shortly after the proposal.

The SPC also removed destination restrictions on Murban crude and announced plans to move from retroactive to forward pricing for the crude from this year, key steps for the launch of the futures contract.

ADNOC will partner with BP, GS Caltex, INPEX, JXTG, PetroChina, PTT, Shell, Total and Vitol to launch IFAD.

Murban, produced from an onshore field in Abu Dhabi, has a total production of approximately 1.7 million b/d -- 75% of which is exported and flows largely into Asia, with Abu Dhabi retaining the balance for domestic refining. The crude, with an API of 40.5 and sulfur content of 0.78%, is considered light sour by Asian refiners.

ALIGNMENT

In addition to its flagship Murban futures contract, the ICE-ADNOC alliance intends to launch a full suite of related, cash-settled contracts to allow market participants to boost activity for Murban in step with established trading practices.

These included contracts mirroring existing widely used derivatives such as the Brent/Dubai Exchange Futures for Swaps spread, or the Brent swap/Dubai swap instrument, according to specification details for the Murban contract seen by S&P Global Platts.

Traders will also be able to trade product spreads with Murban as the underlying crude, for refined products such as gasoil, fuel oil, gasoline and naphtha being traded against Asia-specific price references.

Murban constitutes more than half of the UAE's crude production, and Abu Dhabi has plans to increase output of the grade. Murban is currently shipped from Abu Dhabi through the Habsham pipeline to the port of Fujairah on the east coast of the UAE, and ADNOC is in the process of developing underground storage for the crude in caverns there, as well as interconnections to the rest of the port to facilitate trading and exports, according to market sources.

ADNOC, which aims to increase its crude production capacity to 4 million b/d by the end of 2020 from its current 3.4 million b/d, announced in November an initiative to boost Murban output. ADNOC CEO Sultan al-Jaber has called Murban the "crude of choice” for refineries in Asia.

ICE-ADNOC Murban contract specifications*

• Overview: Murban crude oil futures is a physically delivered contract, basis FOB Fujairah (ADNOC) loading terminal, the UAE. The contract will provide users with an effective hedging instrument for Persian Gulf crude oil and other grades trading into Asia Pacific. The underlying physical market is for Murban crude oil available without the local Abu Dhabi resale restriction.
• Contract Size: 1,000 barrels per lot
• Trading price quotation: $0.01/b
• Settlement price quotation: $0.01/b
• Daily settlement price: A volume weighted average price of trades between 19:28-19:30 London prevailing time
• Final settlement price: Singapore Marker Price on last trading day
• Marker prices: Daily Marker Prices published at 16:30 Singapore time and 16:30 London prevailing time
• Trading hours: 22 hours per day (01:00-23:00 London time)
• Physical delivery: Murban crude at ADNOC Terminal, Fujairah on FOB basis to buyer's vessel during the delivery month
• Last trading day: Last business day of the second month preceding the delivery month
• Contract series: Up to 48 consecutive months
• Source: ICE

*Interim contract specifications are subject to change