Mideast War Spurs Tweak to Oil Benchmark With Hormuz Shut Off

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(Bloomberg) — A Middle East oil benchmark that’s typically used to price the bulk of crude supply from across the region has been tweaked again, as the closure of the Strait of Hormuz stymies flows and roils trading.

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The process for pricing the regional Dubai benchmark, set by S&P Global Energy, was changed on Friday to encourage more tradable deliveries as a supply crunch hits the region. Under the move, a so-called pricing offset for Abu Dhabi’s flagship Murban crude has been suspended, Platts, a unit of S&P Global Energy, said in a March 20 subscriber note. That means that the price of Murban won’t be allowed to drop below Dubai’s level during a daily assessment, encouraging supply of that particular grade if Murban goes up.

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“The decision has been taken to maximize the amount of deliverable crude in the Dubai benchmark at a time when only Murban and Oman can be declared in the Platts Dubai process due to the severe restrictions on traffic through the Strait of Hormuz,” S&P Global Energy said.

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The global oil market has been pitched into turmoil by the war in the Middle East between the US, Israel and Iran, with prices spiking following a swathe of attacks against energy infrastructure across the region. Critically, Tehran has managed to choke off virtually all traffic passing through the Strait of Hormuz, forcing Persian Gulf producers to lock-in some supplies.

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The latest shift for the benchmark is the second this month. In the first week of the war, Platts excluded grades loading in the Persian Gulf from the pricing.

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The United Arab Emirates — which includes Dubai and Abu Dhabi — and Oman sit across the strait from Iran. The UAE has been forced to curtail some output, although it is still managing some flows via Fujairah, which sits outside the strait. Oman’s cargoes go via Mina Al Fahal. Both ports have seen interruptions.

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The price of Murban was $125.90 a barrel as of 4:30 p.m. in Singapore on Thursday, the cutoff time when the so-called Platts market-on-close window ends and assessments take place, traders and brokers said. Dubai’s front-month contract value was assessed at $166.80 a barrel on the same day. That gap may narrow later on Friday after the Platts change was implemented.

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Already, Murban futures have been bid higher. The May contract advanced by around 1% after the Platts change was announced, even as global oil benchmark Brent and West Texas Intermediate, a main US marker, were lower for the day.

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Platts will continue to monitor developments, it said. The group is still seeking feedback on how Dubai methodology could evolve if the conflict worsens and there were more disruptions, or a resumption in vessel traffic through the strait, it added.

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