Middle East Benchmark Pricing and the Oil Crisis
Even before the arrival of Covid-19, the pricing mechanisms available for the multi-billion-dollar East of Suez crude trading market were already in flux. From Saudi Aramco’s decision to adjust its Asia pricing formulae in 2018 to Abu Dhabi National Oil Company (ADNOC) announcing the launch of a new crude futures contract (Murban futures) late last year – the Middle East-Asia crude pricing system has clearly grown in complexity, highlighting the importance of benchmarks as tools of price discovery.
For all the key East of Suez oil pricing players – traders, oil companies, governments, and Price Reporting Agencies (PRAs) – the demand shock due to Covid-19 was the perfect stress test, as it unravelled the DNA of existing benchmarks.
It is against this backdrop that this Comment examines how the region’s key benchmarks – Dubai Mercantile Exchange (DME) Oman futures and Platts Dubai/Oman – performed and whether or not they worked as tools of price discovery. While the oil market is now charting its route to recovery, the consequences of the crisis on the region’s pricing system will continue to reverberate for years to come.