Intercontinental Exchange (ICE), the owner of the New York Stock Exchange, on Monday said it would launch a new exchange called ICE Futures Abu Dhabi to host futures contracts based on ADNOC’s Murban crude oil.
ICE Futures Abu Dhabi will be set up in Abu Dhabi's financial center, the Abu Dhabi Global Market (ADGM).
A futures contract is a contract for assets (in this case oil) bought at an agreed price but delivered at a later date. Futures contracts typically trade on an exchange and are used as a hedge against market volatility or speculated on by traders expecting price movements.
A group of energy companies including BP, France’s Total SA, and Shell have agreed to become partners in the new exchange. Senior leadership from the firms along with ADNOC Chief Executive Officer Sultan Al Jaber signed off on the deal at the ADIPEC energy conference on Monday.
“This will take Abu Dhabi and Murban crude to the next level of transparency,” ICE Chief Executive Officer Jeffrey Sprecher told reporters at the event.
“This is another investment by Abu Dhabi to attract the companies that you see here,” he added.
The announcement comes days after Abu Dhabi’s Supreme Petroleum Council (SPC) launched a new pricing mechanism for Murban, ADNOC’s main onshore crude oil grade, and announced plans to list it is a futures contract on an “internationally recognized” exchange.
Murban, which accounts for about half of ADNOC’s total crude oil output, serves as a benchmark for most Asian refiners and its futures launch comes amid intense competition from US shale exports.
ICE Murban Futures will be physically delivered at UAE’s Fujairah on a free on board (FOB) basis, the company said in a statement.
“Murban futures will sit alongside the most significant global oil benchmarks,” Sprecher said, adding that it would allow “a much larger group of participants to trade and hedge Murban.
The ADGM’s application of English common law makes it easy for ICE to get the business “up and running very quickly next year,” Sprecher said at ADIPEC. The launch of the futures is expected in the first half of 2020.
Listing Murban futures contracts is the biggest change in Middle East crude pricing mechanism in years. It will be the second futures contracts traded on a regional exchange after Dubai Mercantile Exchange’s Oman crude futures.
“For the first time, Murban will be priced on a forward-looking, market-driven basis … offering the market greater transparency and certainty,” Al Jaber said.
The first day of ADIPEC began with discussions over the future demand for oil.
UAE’s Minister of Energy and Industry Suhail Al Mazroui said that there will always be demand for crude oil despite an expected slowdown in demand.
“I am not worried about growth to tell you the truth,” Al Mazroui said at the ADIPEC energy conference in Abu Dhabi. “It’s best to change the way we consume energy rather than limiting one form of energy,” he added.
Al Mazroui, who was responding to concerns over future oil demand growth, was part of a panel consisting of OPEC Secretary-General Mohammed Barkindo and former US Secretary of State Condoleezza Rice.
“Whether it’s a million, 500 or 200 … growth is reasonable because population is growing,” Al Mazroui said.
The energy minister’s comments come days after OPEC lowered its oil demand growth forecast for the medium-term and long-term.