Adapting to a More Competitive Oil Market: New Pricing Mechanism for Middle East Crude


Adapting to a More Competitive Oil Market: New Pricing Mechanism for Middle East Crude

The Federation of Indian Petroleum Industry (FIPI) in association with Argus Media organized ‘Adapting to a More Competitive Market: New Pricing Mechanism for Middle Eastern Crude’ on 19 April, 2021 over virtual platform. The dialogue was aimed at understanding the new and emerging dynamics of the international oil market as the as the ICE Murban Crude Oil Futures market joins the ranks of prominent oil price benchmarks such as Brent and West Texas Intermediate. During the session, the experts joining from Argus Media helped the participants better understand the changing energy markets after the pandemic and the factors that will set the pace and direction for the market in the medium to long term. The team of experts joining from Argus Media included Mr Francis Osborne, Argus Global Head of Forecasting, Argus Media; Mr Alajandro Barbajosa, Vice President Crude Middle East; Mr Karl Kleemeier, VP Business Development, Argus Media; and Ms Azlin Ahmed, Asia Crude Editor, Argus Media.

Commencing the proceedings of the day, Mr Rajiv Bahl, Director – Finance, Taxation and Legal, FIPI extended a very warm welcome to the speakers and participants at the session. He highlighted that the initiation of the ICE Murban crude futures market by Abu Dhabi will bring about tectonic changes to the international oil markets. Mr Bahl underlined that this development will have far reaching consequences, especially for the Asian consumers. It is expected that with the new futures market coming online will yield better prices for the Asian buyers. He further mentioned that there is also a rising probability that more of the Middle Eastern crude suppliers might soon break free and follow suit. He hoped that through this session, experts from Argus Media would help the participants gain a better understandings into the future of oil market and how the latest developments will change its course.

Mr Francis Osborne in his presentation on the crude market outlook mentioned that the OPEC plus has been largely successful in managing the oil markets and keeping the oil production well below the pre-COVID levels. In April, OPEC plus has decided to increase the oil supply by as much as 2.4 Mbpd by June, which will prove a sizeable increase. He, however, highlighted that the unity among the OPEC plus is not very strong and it is expected that some countries, like Russia and Iraq, may opt to move out in the near future. The crude prices have rallied since the fourth quarter of the last year and a key factor behind this rally has been the roll out of the vaccination drive by most countries. He pointed out that while the demand for oil has recovered from the lows seen last year, the pace of recovery has been very slow. He highlighted that while China has recovered from the pandemic in H1 and the economy is back on track the oil consumption in the country still remains largely flat. In India, he said, the demand has recovered but is still struggling to grow. As the country is facing possible lockdowns due to the rising number of infection cases demand from India is expected to weaken over the next few months. He expected that the global oil markets will rebalance by the end of the year 2021. With oil prices remaining strong there is also an expectation of increase in investment by 2022.

The following presentation at the session was by Mr Alejandro Barbajosa and Mr Karl Kleemiere on the ‘New Pricing Mechanism for Middle East Crude’. The presentation pointed out that the pricing scenario in the oil market today are truly historic. One of the driving force behind this shift has been the surplus of crude in the Atlantic basin driven by the growth of Shale oil in the US. This has presented serious challenge to the Middle-Eastern monopoly on the Asian market. The Middle-Eastern suppliers are now forced to take into account the pricing signal arising from the marginal barrel imported from Atlantic basin. This has also provided the Asian refiners with a choice of buying crude from alternative sources. Today India is one of the major buyer of the US crude, importing close to 600,000 bpd. Speaking of the increasingly competitive market, experts pointed out that Murban, Qatar Land and Arab Extra light are similar grades to the extent that Murban and Qatar land were priced retroactively to Arab Extra Light. Karl further pointed out that going forward Murban crude will be available to refiners from the exchange for June deliveries. Due to uncertainty over the Official Selling Prices (OSPs) of Saudi grades, some refiners will be inclined towards buying Murban crude with higher price certainty. This may force Aramco to react to the price signals at the Murban futures market. Experts predicted that since Murban will be traded at a market reflective price, there is a possibility that the other grades may have to soon follow suit. From the point of view of the Indian refiners, the above developments are largely seen as favorable as they will assure them market linked pricing. With increase in competitive pricing in the region, Indian refiners located closest to the source will benefit from these developments. Concluding the presentation the experts remarked that with Murban futures market, ADNOC does not only commit on price but also on supply transparency. They predicted that demand from refiners across South-East Asia for the Murban crude will ensure there will be enough participation to guarantee transparent and accurate pricing signals at the Murban futures market. 

The next segment of the session was audience Q&A. For this session, an overwhelming number of questions were received from the audience, which also stood testimony to the audience interest and timeliness of the subject matter. The experts from Argus Media provided detailed answers to the audience questions. The one and a half hour long session witnessed an overwhelming participation by over 250 participants across the oil and gas value chain in the country. Such overwhelming interest and participation from the industry has been a constant source of inspiration for FIPI to organize such knowledge sharing sessions. The session was brought to an end, wishing all speakers and participants the best of health and expectations of meeting soon physically.

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