Two years ago, West Texas Intermediate (WTI), the U.S. benchmark crude, joined Brent as one of the world’s most traded and liquid oil contracts. This move was seen as a significant milestone in oil trading. However, as the global oil market continues to evolve, the possibility of a Middle Eastern crude blend challenging international benchmarks is emerging.
While this scenario remains distant, it is a possibility, according to Energy Intelligence author Adi Imsirovic. In a recent opinion piece, Imsirovic suggested that some Middle Eastern oil producers are already developing their own local benchmarks, aided by national oil exchanges.
Imsirovic pointed to the Abu Dhabi Exchange, noting that it is not just a tool for national pride but a strategic asset that could help ensure continued crude oil exports during market disruptions. He also speculated that the UAE might eventually decide to leave OPEC, although this would be a significant step.
The idea of Middle Eastern countries breaking away from OPEC has been raised before, and tensions within the group are not new. OPEC’s member nations often have differing political and economic agendas, which has led to exits and re-entries in the past. Recently, the UAE has indicated that it does not fully support Saudi Arabia’s strategy of restricting oil supply to push up prices. The UAE has also announced plans to increase its oil production capacity from 4.5 million barrels per day to 5 million barrels over the next three years.
Imsirovic suggests that the Abu Dhabi Exchange could play a key role in helping the UAE develop its own oil market, particularly if it ever decides to break away from OPEC. Another example is Oman, which operates the Dubai Mercantile Exchange (DME). Last year, Saudi Arabia’s stock exchange operator, Tadawul, purchased nearly a third of the DME’s stake but clarified that Saudi oil would not be traded on the exchange to avoid conflicts of interest.
Saudi Arabia, as the largest oil producer in the Middle East, presents a good example of the hurdles that must be overcome for a regional oil contract to become a global benchmark. Imsirovic highlighted Saudi Arabia’s 2020 strategy to flood the market with oil in an attempt to counter Russia, a move that created significant logistical challenges, especially with storage and delivery when the excess volumes failed to find buyers.
Another significant challenge to the Middle East oil market is the lack of diversity in its crude offerings. The Brent benchmark currently includes five different crude types: Forties, Ekofisk, Oseberg, Troll, and WTI Midland, which together provide flexibility and liquidity. In contrast, the Dubai benchmark, which is the most similar to Brent, only includes four types: Upper Zakum, Al Shaheen, Oman, and Murban. However, these grades are produced in relatively low volumes, making it difficult to establish a global benchmark.
To increase liquidity and global appeal, Middle Eastern oil producers may consider forming a combined benchmark using similar-quality crude grades. However, such a long-term plan faces serious political and logistical hurdles. Notably, any such benchmark would likely need to include both Saudi and Iranian crude, which would require overcoming decades of geopolitical tensions.
In summary, while the idea of a Middle Eastern oil benchmark competing with Brent and WTI is a possibility, it faces significant challenges. Political, logistical, and market factors must align for such a shift to occur, making this scenario a long-term prospect, at best.
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