According to recent economic reports, the UAE is trying to transform the way in which oil is sold in the Middle East. This has become clear through its efforts to launch a new oil futures exchange called Murban. The Abu Dhabi National Oil Company (ADNOC)’s adoption of this plan is indicative of the UAE’s far-reaching ambitions to transform its hydrocarbon resources into fast cash, and to prepare for any future decline in oil demand, given the global shift towards renewable energy.
This will lead to the increased availability of UAE oil for international trading through traders or brokers. As soon as oil is sold on the oil exchange, it will begin to flow through the pipelines to Fujairah,which is the link between the desert oil fields in Abu Dhabi and global markets. Should this experience succeed, and some of the Middle East’s oil is sold on the futures market,this will spur other countries to adopt a similar path.
A New Approach
1- Moving beyond traditional methods of oil pricing: The oil-producing countries of the Gulf, including Saudi Arabia, Iraq, and the UAE, have generally priced their barrels using traditional methods according to current prices in other areas of the world, and usually sell crude oil directly to refining companies or international corporations.
When Abu Dhabi begins to sell oil futures, and to ship its own oil barrels from the Port of Fujairah, this will mark a significant step that the UAE is taking for the first time. Abu Dhabi hopes to change the way in which it prices nearly a fifth of the world’s crude oil, seeing as the UAE produces approximately 20 million barrels of oil every day. Abu Dhabi wants the oil futures of UAE oil to become a regional standard.
2- Abu Dhabi to provide oil for trading: Abu Dhabi is currently removing all relevant restrictions with the goal of making its oil available for trading through traders and brokers. Global investors are interested in basic commodities because of the increased revenue compared to other assets, and in order to protect themselves from inflation.
As soon as oil is sold on the stock exchange, it will begin to flow through the pipelines to Fujairah,which is the link between the desert oil fields in Abu Dhabi and global markets. If this experience succeeds, and some of the Middle East’s oil is sold on the futures market,this will spur other countries to adopt a similar path.
3- Developing storage tanks for Murban oil: In order to help facilitate the transformation that the UAE is working towards in oil markets, ADNOC spent almost 900 million dollars to build 40 million barrels as a storage space in the caves under the Fujairah mountains. This will be in addition to the storage tanks that ADNOC already has in the port, which will keep a significant amount of UAE Murban oil in easy reach in order to mitigate any future disruptions with supply.
ADNOC is able to produce almost two million barrels of Murban oil every day. It pledges to provide the oil exchange with half of this total amount during the coming year, which will either match or exceed the supply of crude oil today on exchanges such as Brent Crude or West Texas Intermediate.
4- An Ambitious UAE Plan: The ADNOC plan is evidence of the UAE’s far-reaching ambitions to transform its hydrocarbon resources into fast cash, and to prepare for any future decline in oil demand, given the global shift towards renewable energy. The UAE aims to increase its rate of production from 4 millionbarrels per day currently, to 5 million barrels by the beginning of 2030, which would make it the largest producer of oil in OPEC, after Saudi Arabia.
In conclusion, Gulf countries are developing a wide-reaching strategy toaddress the significant reduction in oil production last year because of the COVID-19 pandemic. However, Murban’s oil futures will not have any effect on OPEC or its capacity to set the price of oil.