Gulf countries target a fair price for oil by changing the pricing mechanism (report)

UNITED STATES (OBSERVATORY NEWS) — In an attempt to strengthen the position of Gulf oil globally, the countries of the region have embarked on changing the oil pricing mechanism in order to enhance the competitiveness of the fifth of the global production that the region produces.

Analysts told “Anatolia”, that re-pricing is a continuous development since the beginnings of the oil industry to reach a fair price out of the control of producers and is linked to market fundamentals, and is necessary for the Gulf countries that produce more than 20 million barrels per day.

The Kuwait Petroleum Corporation (government) intends to approve the Oman crude futures contract from the Dubai Energy Exchange, an indication for pricing Kuwaiti crude oil exports to the Asian continent beginning in February 2020.

The Supreme Petroleum Council in Abu Dhabi decided last November to launch a new pricing mechanism for Murban crude, the main crude produced by ADNOC, the government’s oil arm.

For its part, Qatar Petroleum announced in a statement that it would change the methodology of pricing Qatar’s onshore and offshore oil, which it markets and sells from pricing retroactively to pricing from February 2020.

The Qatari company stated that the new pricing methodology for Qatar’s onshore and offshore oils will be based on the declared and transparent regional oil price indicators.

Saudi Aramco (the largest oil company in the world) approved the change of the oil pricing mechanism destined for Asia in October 2018, for the first time since the mid-1980s.

– Determine the feasibility –

It will take some time until its viability is determined to prove the success or failure of the new pricing mechanism methodology, it said.

Al-Shatti added to Anatolia, that the oil pricing mechanism is between the parties of the seller and the buyer, and thinking about the change is proposed by one of the two parties, but the agreement takes place between the two because it will be within the terms of the contract.

He stated that the rationale for change is multiple, because it is required to achieve conditions in order to continue its association with market developments, including the size of oil liquidity and the extent of its liberation from any governmental restrictions and its compliance with international conditions.

He continued: “The pricing mechanism is constantly changing, as is happening in America, Europe and Asia, and crude oil may witness a change in the components and method of calculating and sometimes the source of pricing.”

The oil analyst explained that in the past several alternatives to pricing have been introduced that include the “Arabian Light, Medium, Kuwaiti, Basra, Zakum, Marian) oils as a deserved alternative to Dubai, which can be inferred for pricing.”

He said: “Of course, new oils are created that express the quality, light, medium or heavy.”

When asked about the current pricing in the region’s markets, Al-Shatti mentioned that some countries in the region depend on the average oil prices retroactively, with a price premium for the coming month based on the developments of the existing market, so prices can only be known upon final delivery.

He pointed out that most of the countries in the region do not approve prices on a monthly basis, taking into account the most important factors, pending the announcement of Saudi Aramco’s prices, which will take place during the first week of the month.

– Competitiveness –

John Luca, Director of Development at Thank Marks, said that the new pricing methodology will enhance the competitiveness of the region’s oils, and give new and existing buyers the ability to compare prices compared to global and regional oils.

And Luca continued: “Repricing is a deserved and continuous natural development since the beginnings of the oil industry, to reach a fair price that is out of the control of producers and is linked to market fundamentals.”

He stressed that the mechanism of imposing prices that were monopolized by the major countries developed into prices imposed by governments and the Organization of Petroleum Exporting Countries “OPEC”, then to prices determined by the markets, whether immediate or forward.

He pointed out that pricing mechanisms are affected by the expectations of the oil markets for the quality of the oil that will be priced, whether there will be a shortage or an increase in the supply and the volume of demand for it.

He emphasized that the proposed change is not a change in the equation on which the price is calculated, but rather a change in the source of pricing.

– Conducting assessments –

Ahmed Hassan Karam, an analyst for international oil markets, said that the new pricing operations for oil produced in the Gulf region will be a reference for buyers to determine the volume of costs and conduct assessments on them.

Karam pointed out to Anatolia that the process of linking the pricing of a specific reference to the approval of oil prices is only a way to determine the price of a barrel of oil with the closest quality to the quality of the oil produced in terms of specifications.

He stated that each quality of oil has a specific reference from international oils, to assess its prices, for example Brent crude and West Texas Intermediate are the most widely used as references for global oils.

Karam said: “These methods will not play in any way to add a noticeable effect to world oil prices.”


This article is written and prepared by our foreign editors writing for OBSERVATORY NEWS from different countries around the world – material edited and published by OBSERVATORY staff in our newsroom.

Our Standards, Terms of Use: Standard Terms And Conditions.

OBSERVATORY — Breaking news source, real-time coverage of the world’s events, life, politics, money, business, finance, economy, markets, war and conflict zones.

Contact us: [email protected]

Stay connected with Observatory and Observatory Newsroom, also with our online services and never lost the breaking news stories happening around the world.

Support The OBSERVATORY from as little as $1 – it only takes a minute. Thank you.

We are OBSERVATORY — the only funding and support we get from people – we are categorically not funded by any political party, any government somewhere or from any grouping that supports certain interests – the only support that makes OBSERVATORY possible came from you.