popular articles

ADNOC faces challenges to launch Upper Zakum futures contract

ADNOC's Upper Zakum exports are falling, making it difficult to launch a futures contract for this medium-sulphur crude. Liquidity and market challenges emerge as OPEC+ plans a quota increase.

Please share:

For the past eight months, Abu Dhabi National Oil Company (ADNOC) has been recording a steady decline in exports of its Upper Zakum medium-sulphur crude, hovering around 700,000 barrels per day (b/d) and falling to 589,000 b/d in June, according to data from S&P Global Commodities at Sea.
This decline coincides with the transformation of the Ruwais refinery, which is now able to process heavier crudes.
The change in strategy frees up volumes of Murban, a lighter crude, for export, but reduces the volumes available from Upper Zakum for the world market.
Upper Zakum, with an API of 33.9, is a medium-sulphur crude, while Murban, with an API of 40.5, is a light crude.
This difference in quality influences ADNOC’s export strategy.
The decline in Upper Zakum exports poses a major problem for the establishment of a viable futures contract, as the market needs sufficient trading volumes to ensure liquidity and price discovery.
According to Adi Imsirovic, Director at Surrey Clean Energy, volumes below 800,000 b/d compromise the liquidity needed to support a futures contract on a trading platform.

Liquidity issues and market reluctance

The Intercontinental Exchange (ICE) and ADNOC had announced plans in 2022 to launch a futures contract based on Upper Zakum for the second half of 2023, but the plan was delayed without further updates.
Reduced export volumes are raising concerns among market operators about the viability of this contract.
Omar Najia, Global Head of Derivatives for BB Energy, expresses doubts about the usefulness of such a contract without a sufficient volume base to guarantee price discovery.
Some market operators believe that Upper Zakum could better reflect the value of Middle East medium-sulfur crudes than the lighter Murban.
They suggest that Upper Zakum could arbitrate against the Platts Market on Close valuation processes for the region’s crudes.
However, these proposals remain theoretical until the necessary liquidity is secured.

Production potential and OPEC+ adjustments

ADNOC could see an opportunity to improve the Upper Zakum situation with OPEC+’ s plan to reduce some of its production cuts from December 2023.
The alliance, which brings together many major oil producers, recently announced a gradual increase in quotas for members, including the United Arab Emirates, where ADNOC is the main player.
The Emirates’ production quota is due to increase by 14,000 b/d in December 2023, then by 47,000 b/d each month from 2025, subject to market conditions.
This quota increase could provide ADNOC with leeway to increase its Upper Zakum production, but the market challenges remain substantial.
A rebound in Upper Zakum export volumes could support the launch of the forward contract, but depends on many external factors, including global demand for medium-sulphur crude.

Diversification strategy and outlook for Murban

At the same time, exports from Murban, which benefit directly from the Ruwais refinery flexibility project, are increasing.
Murban exports reached 1.58 million b/d in July 2023, up from 1.19 million b/d the previous year.
The increase in Murban’s exports has also boosted the liquidity of its futures contract, which recorded record trading volume in June.
According to some analysts, a more integrated regional strategy may be needed to ensure the viability of a futures contract based on medium-sulfur crudes such as Upper Zakum.
A combination of Upper Zakum with other regional crudes, such as Oman and Arab Light, could create a more robust futures contract, potentially even a global benchmark for sulfur crudes.
The decisions of ADNOC and other regional players over the coming months will be crucial in determining whether the market will see the emergence of a viable Upper Zakum futures contract, or whether other strategies will be required to respond to global oil market dynamics.

Register free of charge for uninterrupted access.

Publicite

Recently published in

US crude oil inventories fall by 4.3 million barrels

Commercial crude reserves in the United States declined more than expected, following increased refinery activity according to EIA data published on June 4.
TotalEnergies has signed an agreement with Shell to increase its stake in Brazil’s offshore Lapa field to 48%, while divesting its interest in Gato do Mato.
TotalEnergies has signed an agreement with Shell to increase its stake in Brazil’s offshore Lapa field to 48%, while divesting its interest in Gato do Mato.
SBM Offshore has signed a divestment agreement with GEPetrol to fully withdraw from the FPSO Aseng project in Equatorial Guinea, with an operational transition phase of up to one year.
SBM Offshore has signed a divestment agreement with GEPetrol to fully withdraw from the FPSO Aseng project in Equatorial Guinea, with an operational transition phase of up to one year.
Meren Energy has launched a partial divestment process for its EG-18 and EG-31 assets to attract new partners and reduce its exposure in Equatorial Guinea.
Meren Energy has launched a partial divestment process for its EG-18 and EG-31 assets to attract new partners and reduce its exposure in Equatorial Guinea.

PTAS Aker Solutions secures two-year offshore maintenance contract in Brunei

The oil services joint venture extends its contract with Brunei Shell Petroleum for maintenance and upgrade operations on offshore installations in the South China Sea.
Renaissance Africa Energy confirmed to the Nigerian government the operational takeover of Shell Petroleum Development Company’s onshore assets, stating it had surpassed the 200,000 barrels per day production mark.
Renaissance Africa Energy confirmed to the Nigerian government the operational takeover of Shell Petroleum Development Company’s onshore assets, stating it had surpassed the 200,000 barrels per day production mark.
Australian company Woodside Energy has filed a complaint with ICSID against Senegal, challenging a CFA40bn tax reassessment related to the offshore Sangomar oil project.
Australian company Woodside Energy has filed a complaint with ICSID against Senegal, challenging a CFA40bn tax reassessment related to the offshore Sangomar oil project.
Nigeria introduces a tax credit capped at 20% for oil operators meeting cost reduction targets, with a focus on gas and offshore projects.
Nigeria introduces a tax credit capped at 20% for oil operators meeting cost reduction targets, with a focus on gas and offshore projects.

Morocco funds expert mission to revive offshore exploration

Following the withdrawal of two British companies, Morocco launches a MAD2.5mn ($270,000) expert mission to boost the appeal of its offshore oil and gas sector.
International Petroleum Corporation repurchased 89,200 common shares between 26 and 30 May under its buyback programme compliant with Canadian and European regulations.
International Petroleum Corporation repurchased 89,200 common shares between 26 and 30 May under its buyback programme compliant with Canadian and European regulations.
US energy companies reduced the number of active rigs for the fifth consecutive week, reaching their lowest level since November 2021, according to data published by Baker Hughes.
US energy companies reduced the number of active rigs for the fifth consecutive week, reaching their lowest level since November 2021, according to data published by Baker Hughes.
The Swedish government will implement new disclosure rules for foreign vessels, specifically targeting tankers linked to Russia’s hard-to-trace oil fleet.
The Swedish government will implement new disclosure rules for foreign vessels, specifically targeting tankers linked to Russia’s hard-to-trace oil fleet.

Petrobras signs two agreements in Angola to relaunch its offshore activities

Brazilian group Petrobras formalises its return to Angola with two memorandums of understanding signed with Sonangol and the national oil regulator, targeting offshore exploration without immediate financial commitment.
The Abuja Court of Appeal rejected Malabu Oil & Gas’s lawsuit against Agip, Eni’s subsidiary, by upholding the statute of limitations on the OPL 245 oil block case.
The Abuja Court of Appeal rejected Malabu Oil & Gas’s lawsuit against Agip, Eni’s subsidiary, by upholding the statute of limitations on the OPL 245 oil block case.
Portugal’s Galp expects a production surge in Brazil driven by the offshore Bacalhau field, in partnership with Sinopec, Equinor and ExxonMobil.
Portugal’s Galp expects a production surge in Brazil driven by the offshore Bacalhau field, in partnership with Sinopec, Equinor and ExxonMobil.
North Atlantic has entered exclusive negotiations to acquire the Gravenchon refinery, France’s second-largest, from ExxonMobil in a deal reshaping the industrial landscape of the Seine Valley.
North Atlantic has entered exclusive negotiations to acquire the Gravenchon refinery, France’s second-largest, from ExxonMobil in a deal reshaping the industrial landscape of the Seine Valley.

Shell strengthens position in Nigeria by acquiring TotalEnergies’ stake in Bonga

TotalEnergies sells its 12.5% stake in the offshore Bonga oil field to Shell for $510mn, raising the British group's share to 67.5% in the OML 118 block off the Nigerian coast.
The Trump administration authorizes Chevron to maintain limited stakes in Venezuela while prohibiting oil production and export, marking a decisive shift for the oil sector amid geopolitical tensions with Maduro’s government.
The Trump administration authorizes Chevron to maintain limited stakes in Venezuela while prohibiting oil production and export, marking a decisive shift for the oil sector amid geopolitical tensions with Maduro’s government.
Indonesia Energy announces a ramp-up in its oil assets with a 60% increase in proven reserves and confirms a strategic shift toward gradual energy diversification.
Indonesia Energy announces a ramp-up in its oil assets with a 60% increase in proven reserves and confirms a strategic shift toward gradual energy diversification.
SK Innovation, through its subsidiary SK Earthon, is accelerating investments in offshore oil exploration projects in Southeast Asia, enhancing South Korea's energy security through a regional strategy focused on operational efficiency.
SK Innovation, through its subsidiary SK Earthon, is accelerating investments in offshore oil exploration projects in Southeast Asia, enhancing South Korea's energy security through a regional strategy focused on operational efficiency.

Russia Challenges Adjustment to Price Cap on Its Oil Exports

As Western nations debate an adjustment to the price ceiling on Russian oil, Moscow firmly rejects these measures as market-distorting, citing a lack of significant impact on its current exports.
Carlo McLeod joins the new presidential unit dedicated to hydrocarbons as Namibia centralises oil sector governance under the head of state.
Carlo McLeod joins the new presidential unit dedicated to hydrocarbons as Namibia centralises oil sector governance under the head of state.
Valeura Energy has completed eight wells on Block B5/27 in the Gulf of Thailand, securing stable output and preparing a new investment phase at the Nong Yao field.
Valeura Energy has completed eight wells on Block B5/27 in the Gulf of Thailand, securing stable output and preparing a new investment phase at the Nong Yao field.
Shell recognised Mecpec Trading for its 2023 fuel sales growth and contribution to Singapore's distribution network, with a 23% increase in total volume delivered.
Shell recognised Mecpec Trading for its 2023 fuel sales growth and contribution to Singapore's distribution network, with a 23% increase in total volume delivered.

Advertising