07 June 2017, Singapore/London — Oil pricing agency S&P Global Platts said it will not automatically include Qatari-loading crude in its Middle East benchmark after Saudi Arabia and some other Arab states cut ties with Doha, a move that disrupted traditional shipping routes.
Saudi Arabia, the United Arab Emirates, Egypt, and Bahrain said on Monday they would sever all ties including transport links with Qatar, escalating past diplomatic disagreements.
Within hours, the UAE barred all vessels coming to or from Qatar using its anchorage point off Fujairah, a popular location for bunkering, where vessels take on fuel of their own.
Platts’ move is unlikely to have a significant impact on the broader oil market because Qatar is one of the smaller producers in the Organization of the Petroleum Exporting Countries.
Any disruption to Qatar’s liquefied natural gas exports, an area in which it is a major world player, could hit global prices, but there is no indication so far of that happening.
Al-Shaheen crude from Qatar usually loads onto supertankers together with other Gulf-based grades, meaning flexibility of movement is critical to transporting oil out of the region.
“It is typical in the Gulf to co-load VLCCs (very large crude carriers) in combinations that include crude oil from Kuwait, Saudi Arabia, Qatar, UAE, and Oman,” S&P Global Platts said in a note to subscribers.
“As such, restrictions on vessels calling into Qatar and associated uncertainty could impact the inherent value of crude loading from Qatar, including al-Shaheen,” it said.
Riyadh issued a similar shipping ban. Trading sources say cargoes of al-Shaheen usually load onto VLCCs in Saudi Arabia before sailing to Asia.
Trades, bids, and offers for Qatar’s al-Shaheen grade, a medium sour crude, have been included in Platts’ assessment of its Dubai price benchmark, which underpins the vast majority of oil trades in Asia, since January 2016.
The Dubai benchmark is backed by Dubai and Oman crude, Abu Dhabi’s Upper Zakum and Murban grades, as well as al-Shaheen.
“Qatar-loading al-Shaheen may not be nominated in the Platts Dubai Markets on Close process without mutual agreement between buyer and seller,” the company said in an emailed statement.
“Since its introduction as a deliverable into the Dubai basket in January 2016, al-Shaheen has performed well. This review is to ensure that the Dubai benchmark is not negatively impacted by the current uncertainties surrounding Qatar’s relations with its Gulf neighbors.”
Buyers and sellers could mutually agree to alternate loadings of al-Shaheen cargoes, but sellers should not impose this, Platts said.
“If a party wants to bid up Dubai they won’t agree to any of the sellers’ request to deliver al-Shaheen, so it will definitely affect (the benchmark),” a source from an Asian refiner said.
Sellers in the Platts trading window were previously allowed to deliver, without buyers’ consent, any of the five crude grades that make up the Dubai benchmark.
Platts said it would continue to assess and publish independent values for other Qatari-loading crudes during the review. It added that the process would not immediately impact existing nominations for cargoes loading in June and July against trades previously reported in the Platts pricing process, known as the market-on-close.
The company, a unit of S&P Global Inc, produces a number of benchmark prices for the crude oil market, including dated Brent.
*Jessica Jaganathan & Amanda Cooper, Mark Tay; Editing: Christian Schmollinger, Edmund Blair Dale Hudson – Reuters