Platts sets Omani crude as benchmark equivalent to spot Dubai

By the OGJ Online Staff

HOUSTON, Sept. 24 -- A widely quoted oil-price reporting service has moved to address a volume discrepancy that skews pricing of Middle Eastern crudes.

Platts will treat sales of Omani crude as equivalent to those of spot Dubai crude, the benchmark for Middle East term contracts.

High-volume trade of oil from the region�s major producers, including Kuwait and Saudi Arabia, occurs under term contracts with prices indexed to spot Dubai.

But Dubai production is low and declining. Platts said Dubai trading now involves only 10 cargoes/month at 500,000 bbl/cargo.

That's low enough to make the Dubai market susceptible to "squeezes," in which a single trader or small group buys forward positions covering enough volume to control physical supply and influence price.

The effect is magnified by the large volumes of other Middle Eastern crudes indexed to the Dubai spot price.

By recognizing delivery of Omani cargoes under the Dubai spot contract, Platts officials hope to broaden the market and make it less likely to be squeezed.

They said there are about 55 cargoes/mothh of Omani and predicted that, at first, only 1-2 cargoes/month of Omani crude would be delivered to Dubai bidders.

Because quality of Omani crude is higher than that of Dubai oil, said Platts Director of Market Reporting Jorge Montepeque, Omani sellers will turn to the Dubai market only when the price there is rising.

As Dubai production falls, "we will probably see more and more use of the Oman delivery option and a smooth gravitation in the benchmark towards a leading role for Oman," Montepeque said.

Platts also will change the expiry date for its Dubai assessment to the last day of each month from midmonth to align the Dubai contract with others and encourage cross-grade trading.