ICE Futures Abu Dhabi secures regulatory approvals in key jurisdictions
ICE Futures Abu Dhabi (IFAD), which will host the futures contracts for Abu Dhabi’s flagship Murban crude oil, is on track to launch by the end of March 2021, the exchange’s operator said on Wednesday.
Stuart Williams, President of ICE Futures Europe Intercontinental Exchange, told a Gulf Intelligence webinar that IFAD and trading in Murban futures would be launched on 29 March 2021.
The launch, originally scheduled for the first half of 2020, was delayed due to the COVID-19 outbreak. The new launch date was announced in November last year.
Williams said IFAD had received approvals from the Bank of England and the Monetary Authority of Singapore. Bank of England’s approval will allow ICE Clear Europe, the clearing house, to clear contracts traded on IFAD.
Last year, approvals were obtained from Abu Dhabi Global Market, the United States, and Switzerland.
“We have also completed relevant analysis for Netherlands, France, Norway, Australia, Japan, and South Korea jurisdictions,” he said.
From a technology perspective, Williams said Murban is now added to the ICE distribution network.
“We are now working closely with the clearing community that will manage the positions of the clearinghouse, and trading community as well,” he said.
Contracts traded at IFAD will clear alongside ICE Brent, ICE WTI, ICE (Platts) Dubai, and ICE Low Sulphur Gasoil, allowing customers to benefit from margin offsets and capital efficiencies, ICE had explained in past statements.
“We have multiple MOUs signed and announced from both traders and producers that would be participating and helping in pricing using Murban futures contract and delivering crude of similar qualities to Asia,” Williams said
He added that the Murban contract would track the same trading hours and calendar as other global benchmarks.
Khaled Salmeen, Executive Director of Marketing Supply and Trading, ADNOC, said Murban is very diverse in ownership and adoption, with Asia being the dominant destination for the light crude.
“Murban is not owned by ADNOC alone but by seven partners who have lifting rights and sell their own products. We have multiple ownership and physical liquidity coming into the market through that.”
“It has an excellent infrastructure to deliver the physical contract with a lot of redundancies that were audited and given the highest standards of compliance and tolerance management,” he said.
Through IFAD, ICE is hoping to position Murban futures as a viable pricing alternative for crude oil exported from the US Gulf Coast to Asia.
Williams said that historically, WTI served as the benchmark reference for US crude. However, when the “crude hits the water in the US Gulf Coast,” it is priced with reference to Brent complex or an instrument related to Brent.
“So, from a strategic perspective, putting Murban alongside the Brent complex in an exchange and clearing infrastructure that provides offsets against the Brent complex makes it a viable pricing alternative.”
He said that Murban, compared with other Middle East grades going to Asia, is closer in quality to Brent and WTI.
“From a pricing perspective, if one thinks about how you manage the odds between the various locations, and what instruments you use to manage that, we see Murban as being an attractive instrument not just for Middle East crude exports to Asia but for crude from US Gulf Coast to Asia.”
Saleem said market-driven pricing enabled by the Murban futures contract would give ADNOC’s customers the flexibility to manage risks while moving away from a legacy of retroactive selling price mechanism towards an entirely market-driven forward pricing.
He said: “A market-driven pricing mechanism enables us to be much more transparent to the market, and our partners … who have invested a significant amount of money with us, who believe in Abu Dhabi and ADNOC.”
One of the lessons reinforced during 2020 is the importance of access to real-time pricing for risk management and executable liquidity, noted Williams.
Salmeen added that IFAD has the ingredients in place from a liquidity perspective with partners representing all the continents, the trading community, International Oil Companies, and equity holders.
“We will enable this crude [Murban] to continue to be competitive in the market,” he said.
ICE and ADNOC have partnered with BP, GS Caltex, INPEX, JXTG, PetroChina, PTT, Shell, TOTSA (Total), and Vitol for IFAD.
Commenting on the developments, Sudharsan Sarathy, Senior Analyst - Refinitiv Oil and Shipping Research said the introduction of a derivatives contract, off a key benchmark grade produced in the region, has increased the scope for market participants to hedge their exposure of Middle Eastern crude oil sourcing.
“It would also help Asian buyers to better assess competing crude oil grades produced in other regions, thereby improving price discovery. Should more producers in the Middle East participate through the benchmark and allow for pricing of their crude oils using the ICE Murban futures, the basis risk when hedging physical oil sourcing from the Middle East would be reduced,” he concluded.
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