In March, there was a significant drop in exports of Upper Zakum crude from the United Arab Emirates, as the Abu Dhabi National Oil Company (ADNOC) redirected more of its supply to its own Ruwais refinery and increased its shipments of the lighter Murban oil, insights from traders, analysts, and shipping data reveal.
This shift in ADNOC’s strategy has led to a tighter supply of medium-sour crude in Asia and has supported the Middle East crude Dubai benchmark during the price assessment process by S&P Global.
Adi Imsirovic, director of Surrey Clean Energy, remarked on the strategic move by ADNOC, stating, “They invested a lot of money over at least 3-4 years upgrading Ruwais to run heavier grades so it makes a lot of sense to run Upper Zakum and sell Murban.”
He also highlighted the financial advantage of this approach, adding, “Barrel-for-barrel, Murban brings more revenue for equal compliance,” in reference to OPEC’s production quotas which the UAE adheres to.
ADNOC’s $3.5 billion investment in 2018 to upgrade its 837,000-barrel-per-day Ruwais refinery, allowing it to process up to 420,000 bpd of heavier crudes like Upper Zakum, has played a crucial role in this strategy shift.
The change has been evident in the shipment volumes, with up to 300,000 bpd of Upper Zakum crude being directed to the Ruwais refinery in recent months, and a significant portion of overall shipments now being Upper Zakum crude.
This strategy adjustment comes amid broader trends in the region, where exports of medium-sour crudes are declining due to increased demand from new refineries in Kuwait, Oman, the UAE, and Saudi Arabia for local crudes.
Janiv Shah from Rystad highlighted the impact on major importers like China, which now must seek similar oil grades elsewhere due to reduced supply.
The reduction in Upper Zakum exports has notably affected shipments to China, India, South Korea, Thailand, and Singapore, which have seen declines of about 50% or more compared to the previous year.
In response, ADNOC has been offering Murban, its flagship grade, as an alternative to its term customers, leading to a change in market dynamics.
This shift has seen Murban futures weaken while tightening the medium-sour Dubai benchmark.
With Murban’s increased supply forecasts, its price gap with Upper Zakum has narrowed significantly, affecting trading strategies and choices in the Asian market.