ADNOC and the Intercontinental Exchange will launch the Abu Dhabi-based exchange on March 29. The Murban futures contract, and related cash-settled derivatives and inter-commodity spreads, will trade on it, subject to regulatory approval.
The official selling prices for Murban exports will be based on the futures contract and OSPs for ADNOC's Upper Zakum, Das and Umm Lulu grades will be priced at a differential to Murban.
"With our partners we made the choice to basically price those other grades against the Murban to funnel this liquidity into the exchange so everybody has a very solid and liquid market to price on the exchange," Philippe Khoury, executive vice president, trading and sales at ADNOC, said during the Asian Refining Virtual Summit organized by S&P Global Platts.
"We do not exclude that other crudes from the region could come along the Murban, price either against the Murban or be listed on IFAD under their own name; different grades, which would enrich IFAD with a different kind of cuts, crude qualities and have a broader bench of crudes priced through the same exchange."
IFAD is being launched with nine partner companies that include BP, GS Caltex of South Korea, Japanese companies Inpex and ENEOS, PetroChina, Thailand's PTT, Shell, Total and Vitol.
Fujairah delivery
Delivery of Murban though the exchange will initially be in Fujairah, the eastern emirate that lies outside the strategic Hormuz Strait and is a major bunkering hub in the Middle East.
"We will launch the contract with delivery through the exchange mechanism in Fujairah and in due course we will continue to engage with the market to see where there is a demand for the exchange mechanism to cover a greater number of loading terminals," Stuart Williams, president of ICE Futures Europe, told the summit.
"That does not preclude the market from being able to take a delivery through the alternative delivery procedures (ADP)."
Currently, Murban can be loaded from Jebel Dhanna in the emirate of Abu Dhabi, but that terminal has draft restrictions and can't fully load a VLCC, Khoury said.
"The quantity of exports from Jebel Dhanna is very much limited compared to Fujairah because of this draft restriction which implies an incremental cost for the participants to lift from Jebel Dhanna rather than to lift from Fujairah," said Khoury.
"We can continue to explore other avenues of more grades, locations, ADPs, should we deliver oil maybe in other locations in the Middle East or outside the Middle East, these could potentially be added in the future."
Destination-free crude
ADNOC can support exports of Murban by drawing from inventories, including at underground caverns being built in Fujairah that can store up to 42 million barrels of crude, he added.
ADNOC is also lifting destination restrictions for all of its crude grades as it prepares to launch the Murban futures contract, the company announced March 3.
Murban is ADNOC's largest crude stream by volume, with a production capacity of about 2 million b/d of the company's total capacity of around 4 million b/d. It is produced from 2,000 onshore wells in 12 fields, and ADNOC describes the grade as light and sweet.
Murban will be the second physically delivered futures contract to trade on a regional exchange after the Dubai Mercantile Exchange 's Oman crude futures.
It is also a deliverable grade in the S&P Global Platts benchmark Dubai and Oman crude assessments. ADNOC has been pricing its crudes based on Platts Dubai.
China's Shanghai International Energy Exchange (INE) will add Murban crude as a deliverable into its crude futures contract from June 1 this year, the exchange said in a notice on its website Dec. 1.
Murban is the first new grade to be added to the contract since its launch in 2018. The exchange currently has Dubai, Upper Zakum, Oman, Qatar Marine, Basrah Light, Basrah Heavy and Masila as deliverable grades in the contract.
With the lifting of destination restrictions, ADNOC crudes can be freely traded, Khoury said.
"Whether these crudes end up in a refinery or stored and potentially traded on another domestic exchange is not excluded," said Khoury
"Once you lift the destination, at the end of the day the cargo will go into where it is most highly valued."
