Saudis to use new oil benchmark

Saudi Aramco plans to change the formula it uses to price long-term crude oil sales to Asia starting from October, the first such move since the mid-1980s.

singapore — Saudi Aramco plans to change the formula used to price its long-term crude oil sales to Asia starting from October, marking the first change in benchmarks for its official selling prices (OSP) since the mid-1980s, the company said on Wednesday.

Trade sources had earlier informed Reuters of the planned change. The new formula will be based on the average monthly prices of Oman crude futures traded on the Dubai Mercantile Exchange (DME) and the average cash price for Dubai assessed by pricing agency S&P Global Platts, instead of the average of Oman and Dubai prices assessed by Platts, Aramco said.

Saudi Aramco’s OSPs for October will be based on the average settlement prices for the DME December Oman contract and the December Dubai cash price assessed by Platts, both of which are set in October.

DME and Platts did not respond to requests for comment when contacted by Reuters. While Saudi Aramco’s decision surprised the market, a proposal to switch benchmarks has been discussed internally for years, the sources said.

The DME launched the Oman contract in 2007 and it is the most liquid physically deliverable futures contract for Middle East crude oil. In comparison, there are rarely bids or offers for Oman cargoes during the Platts market-on-close price assessment.

“It is obvious — look at the trading volumes of DME versus Platts for Oman,” said Adi Imsirovic, a teaching fellow at the University of Surrey’s Energy Economics Centre who wrote a paper on Middle East oil benchmarks published in 2014.

Brent oil extended gains on Wednesday due to Middle East tensions and a drop in US crude inventories for the second week in a row caused by an outage at a Canadian facility. The price was near session highs above $78 a barrel after an Iranian Revolutionary Guards commander said he was ready to prevent regional crude exports if Iranian oil sales were banned by the United States.

Last year, Iraq’s Oil Marketing Organisation (SOMO) proposed pricing its Basra crude sales to Asia on DME Oman futures starting with January-loading cargoes, but the plan was shelved.

“Somo was the first on the case but they did not think it through nominations. Somo went back to the drawing board. Aramco could not be left behind!” Imsirovic said. —

— AP Aramco’s OSPs for October will be based on the average settlement prices for the DME December Oman contract and the December Dubai cash price assessed by Platts, both of which are set in October.