Adnoc said to plan regional oil marker

ADNOC headquarters in Abu Dhabi. The company is considering dropping destination restrictions on all of its oil and allowing it to trade freely on the open market. (AFP)
Updated 17 July 2019

Adnoc said to plan regional oil marker

  • Aims to launch in-house trading for refined products to boost global clout

DUBAI: The UAE’s state-run ADNOC plans an overhaul for its trading operations as it seeks to emulate the success of rival oil majors and bolster its regional influence.
The company has splurged on hiring former employees of private-sector peers and wants to launch a regional oil benchmark, possibly this year, similar to international markers Brent and WTI, four sources familiar with the plans said.
The plan is not yet finalized and still has to be approved by UAE authorities, such as the Abu Dhabi Supreme Petroleum Council, the sources said.
ADNOC did not respond to a request for comment.
“ADNOC hopes the benchmark will allow it to earn more money and gain bigger prestige in the region,” one of the sources said.
The UAE, the third-largest oil producer in OPEC, behind Saudi Arabia and Iraq, pumps around 3 million barrels per day. It plans to boost output to 4 million bpd by 2020. Most of that oil is produced by ADNOC, based in the country’s capital, Abu Dhabi.
For many years it has traditionally sold oil directly to end-users, mainly in Asia, based on a retroactive pricing system rather than the forward pricing used by Saudi Arabia, Kuwait and Iraq.
Now, the company wants to launch full, in-house trading for refined products and crude as part of energy-sector reforms under Sheikh Mohammed and ADNOC Chief Executive Sultan Al-Jaber.
ADNOC is considering dropping destination restrictions on all of its oil and allowing it to trade freely on the open market, as part of a broader transformation to become more proactive and adaptive to market changes, the sources said.
“The idea behind trading is simple — the UAE sells its crude to someone like BP, which then takes it to the UK, where it is refined into jet fuel which then goes to refuel the UAE’s Etihad planes,” one source said, referring to the Abu Dhabi airline.
“So why can’t ADNOC capture some of the value of trading and the supply chain?“
ADNOC is venturing into oil trading as part of an international expansion aimed at securing new markets.
In January, it signed agreements worth $5.8 billion with Italy’s Eni and Austria’s OMV covering refining and a new trading venture to sell refined products jointly.
Over the past year, ADNOC has hired a raft of ex-Total traders, led by executive vice president Philip Khoury. The others include ADNOC’s head of crude, Emmanuel de Reynies, head of products Lionel Richardson, and Jean Marc Cordier, Francois Chupin and Aegidia Schnepp.
Traders from other oil majors and trading houses also joined, including Suzanne Mullen, previously of BP and Citi.
“These guys know how trading works, how benchmarking works,” one of the sources said.
ADNOC has held talks with French energy company Total and trading house Vitol as part of its new crude oil pricing and trading overhaul, the sources said, while beefing up its in-house trading team.
Total and Vitol declined to comment.
One of the options is for ADNOC to team up with a large player whose worldwide storage facilities it would use.
ADNOC is in talks for a stake in Vitol’s storage business VTTI, two of the four sources said.
VTTI owns storage in the Netherlands, the US, Asia and Africa. In the UAE, VTTI holds storage in Fujairah, a bunkering hub where ADNOC sends most of its crude, bypassing the often-troublesome Strait of Hormuz, which is further north. Around a fifth of global oil supply transits through the strait. Tensions between Iran and the West have contributed to fears of disruption there, sparking price rallies.

HIGHLIGHTS

• ADNOC hires former Total traders in bid to rival majors.

• Seeks to turn Murban crude into benchmark.

• Moves seen as part of drive to increase regional influence.

Inside ADNOC, there are growing views that the company could turn its flagship crude Murban into a regional and possibly global benchmark more popular among foreign buyers by using its ability to export and store oil away from the strait.
Murban is exported from Fujairah and is relatively insulated from possible regional unrest, three of the sources noted.
The Abu Dhabi Crude Oil Pipeline, with a capacity of 1.5 million bpd, carries the bulk of the UAE’s crude production to ADNOC’s storage and loading facilities in Fujairah. ADNOC is also building oil storage under the mountains of Fujairah, with completion due next year.
So far, most Middle Eastern grades including those of Saudi Arabia are priced off the Dubai/Oman benchmark for Asian exports, off Brent-related indices for European exports and various US indices for US shipments.
ADNOC may announce plans to launch Murban as a benchmark as early as November and is talking to a number of exchanges including Intercontinental Exchange (ICE) and the Chicago Mercantile Exchange (CME), the three sources said.
ICE and CME declined to comment.
One source said ADNOC had made it clear during discussions that it was prepared to remove all restrictions on oil resales, a key condition for a crude grade to become a benchmark.
Other key conditions for the success of a benchmark are stable and fairly large oil flows and a developed derivatives market, allowing hedging and forward trading.
“The fact that ADNOC wants to turn Murban into a destination-free grade shows they are serious about making it a benchmark,” a source said.
Soaring US production of predominantly light crude could help Murban, also a light grade, become a benchmark even though most regional grades are heavier.


Powell: No clear hint on rates but says Fed will aid economy

Updated 23 August 2019

Powell: No clear hint on rates but says Fed will aid economy

  • The outlook for the US economy, Powell said, remains favorable but continues to face risks
  • Trump, who has relentlessly attacked Powell and the Fed over its rate policies, kept up his verbal assaults on Twitter

WASHINGTON: Federal Reserve Chairman Jerome Powell sent no clear signal Friday that the Fed will further cut interest rates this year but said it would “act as appropriate” to sustain the expansion — phrasing that analysts see as suggesting rate cuts.
Powell said President Donald Trump’s trade wars have complicated the Fed’s ability to set interest rates and have contributed to a global economic slowdown.
Speaking to a gathering of central bankers in Jackson Hole, Wyoming, Powell didn’t give financial markets explicit guidance on whether or how many rate cuts might be coming the rest of the year. The Fed cut rates last month for the first time in a decade, and financial markets have baked in the likelihood of more rate cuts this year.
The outlook for the US economy, Powell said, remains favorable but continues to face risks. He pointed to increasing evidence of a global economic slowdown and suggested that uncertainty from Trump’s trade wars has contributed to it.
Reacting to the speech Friday, Trump, who has relentlessly attacked Powell and the Fed over its rate policies, kept up his verbal assaults on Twitter:
“As usual, the Fed did NOTHING!” Trump tweeted. “It is incredible that they can ‘speak’without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the US will do great.”
Trump added:
“My only question is, who is our bigger enemy, Jay Powel (sic) or Chairman Xi?“
Powell’s speech comes against the backdrop of a vulnerable economy, with the financial world seeking clarity on whether last month’s rate decision likely marked the start of a period of easier credit.
The confusion only heightened in the days leading to the Jackson Hole conference, at which Powell gave the keynote address. Minutes of the Fed’s July meeting released Wednesday showed that although officials voted 8-2 to cut their benchmark rate by a quarter-point, there was a wider divergence of opinion on the committee than the two dissenting votes against the rate cut had indicated.
The minutes showed that two Fed officials favored a more aggressive half-point rate cut, while some others adopted the polar opposite view: They felt the Fed shouldn’t cut rates at all.
The minutes depicted the rate cut as a “mid-cycle adjustment,” the phrase Powell had used at his news conference after the rate cut. That wording upset traders who interpreted the remark as suggesting that the Fed might not be preparing for a series of rate cuts to support an economy that’s struggling with a global slowdown and escalating uncertainty from President Donald Trump’s trade war with China.
There was even a difference of opinion among the Fed members who favored a rate cut, the minutes showed, with some concerned most about subpar inflation and others worried more about the threats to economic growth.
Comments Thursday from Fed officials gathering in Jackson Hole reflected the committee’s sharp divisions, including some reluctance to cut rates at least until the economic picture changes.
“I think we should stay here for a while and see how things play out,” said Patrick Harker, the president of the Fed’s Philadelphia regional bank.
Esther George, president of the Fed’s Kansas City regional bank and one of the dissenting votes in July, said, “While I see downside risk, I wasn’t ready to act on that relative to the performance of the economy.”
George said she saw some areas of strength, including very low unemployment and inflation now closer to the Fed’s target level. She said her decision on a possible future rate cut would depend on forthcoming data releases.
Robert Kaplan, president of the Fed’s Dallas branch indicated that he might be prepared to support further rate cuts.
If “we are seeing some weakness in manufacturing and global growth, then it may be good to take some action,” Kaplan said.
George was interviewed on Fox Business Network; Harker and Kaplan spoke on CNBC.
The CME Group, which tracks investor bets on central bank policy, is projecting the likelihood that the Fed will cut rates at least twice more before year’s end.
Adding to the pressures on the Fed, Trump has kept up his attacks on the central bank and on Powell personally, arguing that Fed officials have kept rates too high and should be cutting them aggressively.
Trump has argued that a full percentage-point rate reduction in coming months would be appropriate — a suggestion that most economists consider extravagantly excessive as well as an improper intrusion on the Fed’s political independence.
The president contends that lower rates in other countries have caused the dollar to rise in value and thereby hurt US export sales.
“Our Federal Reserve does not allow us to do what we must do,” Trump tweeted Thursday. “They put us at a disadvantage against our competition.”
Earlier in the week, he had told reporters, “If the Fed would do its job, you would see a burst of growth like you have never seen before.”
Powell has insisted that the White House criticism has had no effect on the Fed’s deliberations over interest rate policy.