Stock UAE Oil Refinery Adnoc Ruwais
ADNOC is helming the launch of the new oil futures marketplace. It has drummed up significant support from international oil majors. Image Credit: Bloomberg

Dubai: Abu Dhabi will open a commodities exchange in March to rival those of Middle Eastern neighbors and allow investors to trade its crude using futures contracts for the first time.

The ICE Futures Abu Dhabi exchange will open on March 29 and offer contracts based on the emirate's flagship Murban crude grade, pending regulatory approvals, Intercontinental Exchange Inc. said. The Atlanta-based operator of trading and clearing platforms is setting up the exchange with ADNOC (Abu Dhabi National Oil Co.) and other oil suppliers.

Abu Dhabi is the third-largest producer in OPEC. Murban crude, pumped from onshore fields, makes up more than half of its crude output, now at around 2.6 million barrels daily.

Vitol Group, BP Plc, Royal Dutch Shell Plc and Total SE were among the nine oil traders and producers that joined as partners in the planned exchange last year. ADNOC pushed back the start from the first half of last year, initially due to the need for regulatory approvals and then as the coronavirus pandemic upended markets.

By selling through futures, Abu Dhabi will let the market determine the price of its oil. It's a significant change for a producer that until this year fixed its pricing retroactively, effectively telling buyers the cost of barrels purchased a month earlier.

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Benchmarking

Adnoc wants Murban futures to serve as a regional benchmark for Gulf barrels heading east. Benchmarks help buyers in Asia, the biggest and fastest-growing oil market, to compare crude from the US, Europe, Africa and the Middle East.

Oman and Dubai joined with CME Group Inc. in 2007 to start the Dubai Mercantile Exchange, which trades Omani crude futures. Oman, Dubai and Saudi Arabia price off those contracts. Most other producers in the Gulf - which pumps about a fifth of the world's oil - base their monthly pricing on Dubai and Oman crude-price assessments by S&P Global Platt.

Murban is lighter and contains less sulfur than most Middle Eastern crudes, making it easier to refine. It generally fetches higher prices and is similar in quality to Brent crude, futures for which are traded on the London-based ICE Futures Europe Exchange.

Brent crude has doubled since April, when the Organization of Petroleum Exporting Countries and its partners agreed to cut output to meet plunging demand. But the global benchmark is still down about 39% this year.

2.6million barrels a day

Abu Dhabi's current crude output. The Murban crude, pumped from onshore fields, makes up half of the that