The chairman of Vitol SA, one of the world's two biggest independent oil traders, threw his full weight behind the nascent Oman crude oil futures contract on Tuesday, calling it superior to the old pricing method. The NYMEX-backed Dubai Mercantile Exchange (DME) launched its long-awaited Oman futures contract on June, challenging the existing Dubai-based benchmarking system for over 14 million barrels per day (bpd) of Middle East crude exported to Asia."I very much hope Oman does become a global benchmark for this region," President and Chief Executive of Vitol Ian Taylor told the Asia Oil and Gas Conference (AOGC) in the Malaysian capital. "I think we'll get delivery and I think it will be a successful thing. "While the DME's nominal rival is the Dubai-grade futures contract launched 11 days earlier by the Intercontinental Exchange (ICE), its success also raises the prospect of a switch from the current assessment-based system used as the region's benchmark, set by pricing agency Platts.
The DME's Oman contract can be settled on the basis of physical delivery, similar to the NYMEX U.S. light, sweet crude benchmark. The ICE Dubai contract is financially settled on the basis of Platts' benchmark price assessments, a more remote link to the underlying market. Taylor said that Oman's greater production of some 700,000 bpd made it a better marker than Dubai crude, whose output has dwindled to about 100,000 bpd. The Platts benchmark does, however, allow alternative delivery of Oman crude and Upper Zakum grade from the United Arab Emirates. He said that moves by the Oman and Dubai governments to switch their retroactive export crude pricing system to one based solely on the DME gave it a "genuine linkage" to underlying oil.
While many traders privately say they would like to see a change in the benchmark system, few have voiced their backing publicly. More vital, however, will be support from the region's more conservative refiners and, particularly, Gulf producers. "For the Far East crude buyers it's too early to decide whether to use it," said Koh Ban Heng, Chief Executive Officer of Singapore Petroleum Co. LtdTaylor also said the U.S. benchmark of West Texas Intermediate (WTI) crude delivered to the Cushing, Oklahoma, pipeline and storage hub was an "extremely bad marker". "I would agree that WTI is beginning to be seen as a domestic crude and not an international marker," he said, predicting that London Brent crude could remain at a premium to U.S. crude - a reversal since end-February that surprised many traders - in the long-term.He said this was caused in part by the influx of Canadian crude and the inability to export from the PADD Midwest region.
"I predict that one day Canadian crude oil will get to the Gulf Coast and be exported," Taylor said. Vitol and rival Glencore are the world's top independent oil traders. Vitol had turnover of $114 billion last year, almost half of that from trading nearly 100 million tonnes of crude, according to its website. Source
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