Dubai: Using Fujairah refined oil prices as a benchmark for the Gulf is likely to boost the prices storage terminal owners can charge by 20 to 30 per cent, an industry insider estimates.
And for the past year S&P Global Platts has been collecting flat price assessments in the emirate for diesel, jet fuel, gasoline and fuel oil. Its benchmarking service requires two years of data, said Dave Ernsberger, global head of Energy Pricing at the commodities information provider.
The storage terminal insider, speaking at a breakout session at the Gulf Intelligence Energy Markets Forum 2017 in Fujairah, conducted under the Chatham House Rule, which promises speakers anonymity, said he based his estimates on prices at Singapore, compared to neighbouring storage facilities.
- Dave Ernsberger, S&P Global Platts executive
Currently the Gulf’s refined products used the Singapore benchmark, with an offset to cover shipment there, said Ernsberger, who gave Gulf News permission to attribute his comments at the breakout session, in an interview afterwards.
But that didn’t account for the trade the Gulf does with Africa and other markets away from Singapore, he said.
Once the required data was compiled in a year’s time, a benchmark could be established as soon as participants agreed to make a registered trade, Ernsberger added. That could take some time, as recording the data might lead to unwanted exposure, but once it happened others would follow rapidly.
“There’s a natural reluctance to be the first to do anything,” he said. “It’s the hardest step to take, to be the first person to write that contract. That’s why we need to show the [price] history, so there’s comfort.”
There was no reason why a Fujairah crude benchmark couldn’t be as prominent as Brent or WTI Cushing, he said, but felt the emirate had a stronger case for a refined product benchmark — just as important within the industry, but less likely to make headlines.
“In a year there will be enough data there to compare Fujairah prices with Singapore prices and Rotterdam prices and make a decision as to whether they’d like to write the Fujairah price into their short-term supply contract.”
While demand for oil storage is currently low, Fujairah is using 40-50 per cent of its capacity, experts at the breakout session estimated — a figure higher than other nearby storage facilities, such as Sharjah’s Al Hamriya, which it had achieved by starting to make itself more attractive to traders.
Ernsberg said the three primary factors driving storage demand were blending and surplus storage, both of which were affected by the economic climate, and by oil traders’ need for storage, which was not. Demand from traders therefore acted to insulate traders from inclement economic circumstances, he added.
“There are many more things Fujairah as an emirate, and that investor and storage providers can do individually to support that trading environment,” he said. “It’s made great progress already — blistering progress in just two years — but there’s still plenty of runway ahead.
“What you tend to feel as you go through these discussions is that there’s a lot of resistance to change from folks who’ve invested in assets, in the environment, and it’s completely understandable, resistance to change.
“But the experience of almost every tank investor and operator, almost everywhere in the world, including Fujairah, is that when you embrace disruptive change you’re better off in the end.”
