The Murban crude oil futures contract has carved out a foothold in the trading landscape in the just over six months since it launched, and its host exchange is hoping to attract more participants and smooth out some of the end-of-month price volatility that traders have criticized.
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ICE Futures Abu Dhabi, which started the contract on March 29, said that 79 parties have traded it since the start, with more than 20 involved in physical deliveries. Having more financial traders involved, in particular, would help boost liquidity and tamp down volatility, IFAD President Jamal Oulhadj said in a recent interview.
"We have a very healthy breadth of participants," Oulhadj said. "We have market makers, we have IOCs, we have NOCs, we have financial traders.
"Over time a natural progression for a futures market would be for financials to be a greater portion of the volume in the market," he added. "Financials help to provide price discovery and spread pricing and volume down the curve which allows physical players to manage longer term risk."
Since the launch, 850,000 contracts, equivalent to 850 million barrels of Abu Dhabi National Oil Co.'s flagship Murban crude, have been traded, with an average daily volume of about 6,200 contracts.
There have been also six expiries for a total of just over 45 million barrels that were delivered through the clearing house.
Murban is the second physically delivered futures contracts traded on a regional exchange after the Dubai Mercantile Exchange's Oman futures. It is also a deliverable grade in the S&P Global Platts benchmark Dubai and Oman crude assessments.
Oulhadj said IFAD has seen increased interest in the contract from national oil producers.
"Murban is fungible with many other grades and some NOCs they have started looking at it as proxy for pricing their own, hence why we are seeing a few that are engaged," he said.
Murban is ADNOC's largest crude by volume, with a production capacity of about 2 million b/d, out of the company's total capacity of around 4 million b/d.
Unusually for the Middle East's predominately medium and heavy, sour crude grades, Murban is a light crude with a relatively low sulfur content for a sour grade.
However, the contracts have been marked by end month volatility, when typically liquidity dries up, an issue that also plagues the DME's Oman crude oil futures contract, traders say.
The Murban futures contract "works well in respect of price indicator monthly basis because Saudi looks to refer it for their OSP," said one Asian trader. "But there are still some room to improve the volatility that sometimes moves quickly and momentarily."
Traders also say volumes remain lackluster and it will take time for the contract to become a benchmark for Middle East oil headed to Asia.
"Trading volumes are not that great [and] still time before it takes off," said another trader. "It's similar to DME in terms of end-month volatility."
Oulhadj said the Murban futures contract's end-month volatility is not unique to it and is "function of the market."
"With every physically delivered contract there is a level of volatility at the last two to three or four to five days because the financial players they do not want to take the risk of being pinned for a delivery, so they stay aside and roll their position to the following month," he said. "At the end it is really just the physical players with intention of making or taking delivery are staying there, so of course the liquidity reduces at the end of the contract."
Traders also say the loading dates for the contract have also been problematic, especially for small buyers.
"Buyers feel it is hard to get preferred date range especially for small buyers," a third trader said.
IFAD is working with stakeholders to address this issue by allowing the option to renominate the range for loading, Oulhadj said. IFAD passed the decision in September, but it is waiting for approval from the ICE clearing house to implement the change.
"We worked with ADNOC Onshore and consulted with a huge number of customers that are interested in deliveries to see if we should allow the option to renominate the range [for loading]," he said. "Now it has to clear the clearing house rules because it is really a clearing house rule change, not just IFAD. Hopefully it will be implemented either at the end of November or early December, but it is subject to regulatory approval."
IFAD also still has ambition to add more products for trading in the future, but the process requires consultation with various stakeholders to ensure its success, Oulhadj said.
"There is not one exchange that survives on one contract or one product," he said. "We are always looking at other products to launch but of course in consultation with the market and our stakeholders because they are the ones trading, not IFAD."