#AbuDhabi Wants To Revolutionize How the Middle East Sells Oil - Bloomberg

Abu Dhabi Wants To Revolutionize How the Middle East Sells Oil - Bloomberg

Tucked between the Gulf of Oman and a craggy mountain range, the dusty port Fujairah isn’t an obvious base from which to try and revolutionize the Middle East’s oil markets.

But on Monday, when Abu Dhabi begins selling futures contracts for its oil and then shipping the barrels from Fujairah, it will mark an aggressive shift by the emirate. It hopes to change the way nearly one-fifth of the world’s crude is priced.

Persian Gulf states pump nearly 20 million barrels of oil a day and Abu Dhabi wants the futures for its flagship Murban grade to become the region’s main benchmark.

The Gulf’s biggest producers -- including Saudi Arabia, Iraq and the United Arab Emirates, of which Abu Dhabi is the capital -- have traditionally priced their barrels based on benchmarks from other regions. They’ve mostly sold their crude directly to refiners or international companies with stakes in their fields. Crucially, they’ve prevented those customers from re-selling the oil and benefiting from arbitrage opportunities that exist in global energy markets.

Now, Abu Dhabi’s removing those curbs with the aim of opening up its oil to financial as well as physical traders. Investors globally are clamoring for commodities because of their high yields relative to other assets and to protect themselves against any rise in inflation.

Once sold on an exchange, Murban will be sent by pipeline to Fujairah, where Abu Dhabi’s desert fields physically connect with global markets.

“If successful -- and I think the chances are good -- Murban futures could be a pivotal moment for Middle East crude pricing,” said Vandana Hari, founder of Singapore-based oil consultancy Vanda Insights. If “a sizable chunk of Middle Eastern crude trades freely in the spot market,” that could push other regional producers to follow Abu Dhabi’s lead, she said.