Adnoc awards Murban futures exchange to Ice: Update

Adds extra detail

Abu Dhabi's state-owned Adnoc has selected Intercontinental Exchange (Ice) to host its Murban crude futures contract on an Abu Dhabi-based exchange, which it expects to launch in the first half of 2020.

Ice will set up the new Ice Futures Abu Dhabi (IFAD) exchange to host the first futures contracts based on Murban. IFAD will be established in the Abu Dhabi Global Market financial centre.

"For the first time, Murban will be priced on a forward looking, market driven basis based off the Ice Murban futures, offering the market greater transparency and certainty," Adnoc chief executive Sultan al-Jaber said.

The contract will be physically delivered, with delivery at Fujairah on a fob basis. Light sour Murban crude has gravity of about 40.5°API and 0.8pc sulphur content.

But for market players who prefer financial settlement, they will have that option also. "So if you hold the futures contract all the way to expiry you will end up getting your crude, and by the way we expect a number of physical players to do that, but financial traders who will use these contracts for hedging will roll out of the contract into the next monthly contract for expiry so they don't end up with crude. So, you'll have the option to roll out, or you'll have the option to take crude oil," Ice chief executive Jeffrey Sprecher said.

As part of Abu Dhabi's efforts to secure liquidity in the nascent exchange once it starts trading, nine companies have signed onto IFAD as shareholders, including BP, GS Caltex, Inpex, JXTG, PetroChina, PTT, Shell, Total and Vitol. Their respective equity stakes in the exchange have not been disclosed. But most of the companies have a vested interest in the success of the exchange, whether as Adnoc's producing partners, as traders or as buyers.

Adnoc Onshore — which is 60pc owned by Adnoc — produces Murban. Other shareholders are BP and Total with 10pc each, China's state-owned CNPC with 8pc, Japan's Jodco with 5pc, China's Zhenhua with 4pc and South Korea's GS Energy with 3pc.

Vitol is also a term lifter of Abu Dhabi grades including Murban. Its relationship with Adnoc stretches to Adnoc's purchase, in August, of a 10pc stake in storage terminal owner and operator VTTI. Following the transaction, VTTI will be owned 10pc by Adnoc, 45pc by IFM Global Infrastructure Fund and 45pc by Vitol.

Once the exchange goes live, future term contracts will be priced using the Murban futures contracts. But with regard to Adnoc's other crude streams — Das and Upper Zakum — whether they will continue to be retroactively priced or priced using a formula in relation to Murban, is still being decided.

Adnoc produces around 3mn b/d of crude. Murban production is around 1.65mn b/d, with exports of 1.1mn b/d from the ports of Jebel Dhanna and Fujairah, making it Abu Dhabi's largest single export stream.

Contracts traded on IFAD will be cleared on Ice Clear Europe, subject to regulatory approval, alongside benchmarks Ice Brent, Ice WTI, Ice Dubai and Ice low-sulphur gasoil. IFAD and Ice Clear Europe expect to launch the contracts in the first half of 2020, pending regulatory approval.

"Murban futures will sit alongside the most significant global oil benchmarks, providing the opportunity for the first time for a much larger group of participants to trade and hedge Murban in a regulated, transparent and accessible venue," Sprecher said.

Abu Dhabi's Supreme Petroleum Council announced last week that it would implement a new pricing mechanism for Murban crude, moving it from a retroactive official selling price to market-driven, forward pricing using a Murban futures contract as its price marker.