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Is This The World’s Newest Oil Benchmark?

Irina Slav

Abu Dhabi, the oil producing member of the United Arab Emirates, has plans to take on global benchmarks Brent and West Texas Intermediate with its very own contract, Murban, Bloomberg reports.

Abu Dhabi is among the largest exporters of crude in the Middle East and in its key market, Asia, it now has to compete not just with its neighbors and fellow OPEC members but U.S. shale, which has its own benchmark, WTI.

“I think this has legs,” Bloomberg quoted a senior Vitol executive as saying. Murban crude is “a single grade that serves as a good reference, quality-wise, for the big new flow that’s coming into Asia.”

The Murban has yet to start trading: this is scheduled for 2020, after Abu Dhabi sets up a commodity exchange. If all goes well, the grade, which is light and sweet, could become a preferred import for Asian refiners as a comparable substitute for U.S. oil.

“There is a need for a new marker to reflect shifting crude flows,” a research associate at the Oxford Institute for Energy Studies told Bloomberg. “Murban has many of the characteristics for benchmark success: large physical volumes, its availability for spot trading, and potential for a forward paper market,” Ahmed Mehdi added.

In this aspect, its success is more or less guaranteed. What is not guaranteed is whether other Middle Eastern producers will pick it up as a benchmark for their own crude prices. Yet even if they don’t, Murban could at some point become a component of oil pricing for some producers in the region.

This is what happened to the Omani oil futures, which launched on the Dubai Mercantile Exchange in 2007. While since then it hasn’t become a regional benchmark for oil prices, Saudi Arabia last year added the contract as a component of its official selling price.

By Irina Slav for Oilprice.com

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