UAE's oil exports to Europe expected to rise as Russian flows ease

UAE oil exports to Europe are expected to increase in the coming months, displacing Russian flows that have dropped following its invasion of Ukraine in 2022, speakers at the Middle East Petroleum and Gas Conference by S&P Global Commodity Insights said May 22.

Shipments from Abu Dhabi National Oil Co to Europe could triple to more than 300,000 b/d in July, from an average of about 100,000 b/d in the first quarter, Thomas Waymel, president of trading & shipping at TotalEnergies told delegates at MPGC.

Waymel added that Abu Dhabi's decision to launch its Murban futures contract in 2021 had helped to create arbitrage opportunities for flows into Europe, which have supported demand for ADNOC's flagship light-sour crude grade.

"One of the main reasons that can help this growth more export is, in our opinion at least, Abu Dhabi's choice for market price mechanism for the sale of its crude oil," said Waymel.

ICE Futures Abu Dhabi was launched by the Intercontinental Exchange and ADNOC with nine partner companies including BP, GS Caltex of South Korea, INPEX and ENEOS, PetroChina, Thailand's PTT, Shell, TotalEnergies and Vitol.

Growing liquidity

"Regarding the emergence of this crude flow to Europe, we believe that IFAD futures contract for Murban has a facilitative role, and the liquidity of the contracts has grown," said Waymel. "With the emergence of more of these exports directed to Europe, IFAD will be key to securing new outlets for Abu Dhabi's crude production."

The official selling price for Murban is based on the futures contract settlement, which will go to delivery for two months ahead. OSPs for ADNOC's Upper Zakum, Das and Umm Lulu grades are priced at a differential to Murban. Oil pricing mechanism from other Middle East producers has also impacted export flows to Europe, Waymel added.

"Producers from the Middle East have restrained their supply and also maybe their crude pricing policy has added some impact on the export to Europe," he said. "The official oil prices to Europe have not been particularly attractive, pushing European refiners to look at alternatives."

The average daily volume of Murban futures is over 10,000 contracts with open interest at record highs of 45,000 contracts, IFAD President Gary King told MPGC. "We portably will see more and more of this Murban going to Europe depending on economics," said King.

Currently, Murban crude mostly heads into China, Thailand, India and South Korea.

Active spot trading

When it comes to Asia, Middle East producers need to have an attractive pricing mechanism to recover their market share lost to Russia and US oil flows, Waymel said.

"With competition of Russia and US exports, it might be key for Middle East producers to find ways to have attractive pricing mechanism to eventually regain market share when they raise production again," said Waymel.

However, oil product exports from the Middle East to Europe are performing better than crude flows because they are not linked to official selling prices and are benefitting from the expansion of refineries in the region.

"In the case of Europe and diesel, the Middle East managed to step up its deliveries, filling part of the gap left by Russia, with Asia and the US helping to fill the remaining gap," said Waymel.

"The trading arms of Middle East companies have been able to develop active spot trading, benefitting from the volatility of arbitrage between all the various destinations," he added.