Friday, August 22, 2008

Oman crude price proving too volatile

Looks like the DME trading on Omani crude is proving far too volatile and illiquid for the global oil traders with Oman's medium heavy & sour crude price recently spiking way above Brent and WTI sweet crudes, so they are looking at making a 'synthetic' Omani blend based on Abu Dhabi and Qatari crudes.

The reason everyone is so worried about Omani crude is that, although the volume sold on the markets is only ~500,000bbl/d, the price is used as a benchmark for the prices paid for a lot of other Arabian crude traded in the far east on long term contracts. That means Omani crude prices control indirectly the price of more than 12 million bbls of world crude.

It also leaves open a strong temptation - and the small volume provides the ability - for major players to try and manipulate the price.

Not good news for Omani crude - this was a big part of the decision to float Omani crude contracts on the youthful Dubai Mercantile Exchange [DME] in the first place.
Platts report
Platts looks to cap Oman crude price after July jump
SINGAPORE, Aug 20 (Reuters) - Platts is looking to revamp its pricing methodology for Oman crude after the Middle Eastern oil benchmark surged above global markers Brent and NYMEX, company officials said on Wednesday.
The Energy pricing agency is considering authorising deliveries of alternative Middle East crude -- likely Abu Dhabi or Qatari, the only other Gulf grades that can be traded freely on the spot market -- into Oman contracts to help cap its price.
Platts, a unit of the McGraw-Hill Cos would allow the alternatives to be delivered in lieu of Oman in trades conducted during the 0800-0830 GMT Platts trading window, which provides the basis for crude assessments.
It is also weighing the creation of the so-called "synthetic Oman", which would combine two Middle Eastern grades to produce a quality close to Oman.
"Oman in our mind ceased to work as a benchmark last month," Jorge Montepeque, Platts' global director of market reporting, told a pricing forum.
Oman crude prices rose above Brent prices for three days in a row last month. Platts' assessments of Oman crude was at the most extreme on July 28 at $129 a barrel, $4.50 above Brent and some $9.00 above Dubai prices.

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