Saudi Aramco plans first change in Asia crude oil price formula in decades

Saudi Aramco is changing the formula it uses to price its long-term crude oil sales to Asia, representing the first change to benchmarks for its official selling prices (OSP) since the mid-1980s. (Shutterstock)
Updated 04 July 2018
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Saudi Aramco plans first change in Asia crude oil price formula in decades

  • Saudi Aramco’s long-standing price marker was the average of Platts Dubai and Platts Oman assessments
  • The company’s new Asia marker will replace Platts Oman with Dubai Mercantile Exchange (DME) Oman

LONDON: Saudi Aramco is changing the formula it uses to price its long-term crude oil sales to Asia in a move aimed at improving the overall reliability of its pricing.

It represents the first change to benchmarks for its official selling prices (OSP) since the mid-1980s, the company said on Wednesday.
Reuters earlier reported the planned changes from industry sources.

Saudi Aramco’s long-standing price marker was the average of Platts Dubai and Platts Oman assessments.

The company’s new Asia marker will replace Platts Oman with Dubai Mercantile Exchange (DME) Oman effective Oct. 1, 2018, effectively creating a hybrid between two major Asia benchmarks.

“We’re rebalancing our Asia marker to ensure that it is underpinned by a broad and vibrant marketplace,” said Ahmed Subaey, Saudi Aramco’s vice president of marketing, sales and supply planning.The inclusion of the DME Oman price complements the existing Platts Dubai price to provide our customers with better visibility into price dynamics.”

He said that the idea behind the change was to make sure the marker was market-reflective, well regulated and predictable.

Launched more than a decade ago, the DME Oman contract has become the most liquid physically deliverable futures contract for Middle East crude oil.

“It is obvious — look at the trading volumes of DME versus Platts for Oman,” Adi Imsirovic, a teaching fellow at the University of Surrey’s Energy Economics Center told Reuters.

Saudi Aramco’s decision could improve the liquidity for Oman futures trading on the DME and also for derivative instruments based off the Oman contract for hedging or price conversion purposes, a Singapore-based trader told the newswire.

“This is a good change as Platts Oman cannot be hedged,” he said.

Gulf oil exporters including Saudi Arabia and the UAE want to boost oil exports to Asia as they increasingly compete with US exports to the region.

Saudi authorities plan to list 5 percent of Aramco on the Tadawul exchange and an as-yet unspecified stock market with London and New York competing for the prize listing that has been touted as the world’s biggest IPO.

The oil giant has spare capacity of 2 million barrels per day (bpd) and can meet additional oil demand in case of any interruption in supplies, the company said this week.

The world’s third largest crude oil supplier currently produces about 10 million bpd and has the capacity to produce 12 million bpd, CEO Amin Nasser said.

OPEC and non-OPEC producers including Russia have agreed on small increases in oil production from July, after pressure from major consumers to curb rising costs.


Britain unveils “short and sharper” code for companies

Updated 3 min 31 sec ago
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Britain unveils “short and sharper” code for companies

  • The new code emphasises the need for boards to refresh themselves, become diverse and plan properly for replacing top jobs
  • Company remuneration committees should also take into account workforce pay when setting director pay

LONDON: Companies in Britain must strive to rein in excessive executive pay and make boards more diverse under a new “short and sharper” corporate code, published on Monday.
The Financial Reporting Council (FRC) has updated its code of corporate standards for publicly listed companies, which must comply with it or explain to shareholders if they do not.
The new code comes as the watchdog, which oversees company governance standards and accountants, faces a review to see if it can uphold high corporate standards to maintain Britain’s attractions as a place to invest after Brexit.
British lawmakers have called for tougher corporate govenance standards following a row between food retailer Tesco and its suppliers and the collapse of retailer BHS and outsourcer Carillion. And shareholders have become much more active in terms of rejecting some executive pay deals.
“To make sure the UK moves with the times, the new code considers economic and social issues and will help to guide the long-term success of UK businesses,” FRC Chairman Win Bischoff said.
“This new code, in its short and sharper form, and with its overarching theme of trust, is paramount in promoting transparency and integrity in business for society as a whole.”
There is a new provision for greater board engagement with the workforce to understand their views — aimed at reinforcing an existing provision in law since 2006 which has had a patchy impact.
This, along with a requiremnent to have “whistleblowing” mechanisms that allow directors and staff to raise concerns for effective investigation, mark the biggest broadening of corporate standards in many years, the FRC said.
“The new code is much stronger on abilities to raise concerns in confidence,” said David Styles, FRC director of corporate governance.
It also emphasises the need for boards to refresh themselves, become diverse and plan properly for replacing top jobs.
It introduces a requirement for companies to explain publicly if a board chair has remain unchanged for more than nine years.
Company remuneration committees should also take into account workforce pay when setting director pay.
“To address public concern over executive remuneration... formulaic calculations of performance-related pay should be rejected,” the watchdog said.