OMAN - Omani Oil Pricing.

Official crude oil prices in Oman are set by the Ministry of Oil and Gas (MOG), through a unit controlled by the minister, Dr. Muhammad Al Rumhi. Since the beginning of 1985, a panel of experts has been setting crude prices on a monthly basis, in accordance with a spot market related formula adjusted retroactively to spot transactions during the previous month.

Oman for April was on Feb. 10 discussed in a 5-to-8-cents/b discount to the MOG price, amid rumours that a cargo may have traded at a 6-cent discount. Oman strengthened against bids in the previous week at minus 13-14 cents. With OPEC having decided on Jan. 31 to keep its oil output unchanged at near a 25-year high, little surprise was expected for March term allocations. Middle East producers are supplying full term volumes. Shell on Feb. 10 offered Abu Dhabi's Murban at a 15-cent/b discount to ADNOC's price, down one cent from Feb. 9.

The March Brent/Dubai Exchange of Futures for Swaps (EFS) was on Feb. 8 assessed at $2.95-3.15/b. The front-month EFS has consistently been discussed and traded above $3 since end-July 2004. The April EFS, to gain in importance as the March ICE Brent contract approached expiry on Feb. 13, was seen at around $3.60-3.70/b. With freight costs off the strong levels discussed during the fourth quarter, the arbitrage to move Urals crude to Asia could open. About 3m b/month of Urals crude are regularly shipped to China, under a term contract, and Chinese trader Unipec has the flexibility to take higher volumes.

The weaker EFS, coupled with falling refining margins and heavy refining maintenance, have pushed Oman firmly into a discount to its official selling price (MOG). An April-loading cargo was on Feb. 7 sold at a 3-cent discount to MOG by a European major to a US trader. The grade was bid at a 12-cent discount on Feb. 8. March Brent then stood at $61.25, down almost $2 from around the same time on the previous day on forecasts for rising oil stockpiles in the US.

Unlike its OPEC neighbours, the MOG allows Oman to trade on the spot market. The crude is a marker, together with Dubai, for east of Suez exports from Iran, Kuwait, Saudi Arabia and others. This marker is the Dubai/Oman price average. The MOG is yet to become an active participant in the spot market and turn its main export crude into an official marker.

The sultanate's main export blend, Oman, has become lighter in recent years. It is 36.3[degrees] API, with 0.8% sulphur, which means it is medium/sour lighter than Dubai. In the 1990s Oman was heavier, 34[degrees] API with more than 1% sulphur, somewhat similar to Dubai. (Other Omani export crudes are mostly of the light/sweet category). As a medium/sour crude, the leader of this category in the Middle East, Oman is more popular than Dubai. The MOG usually raises or reduces its monthly PSP if the spot market premium or discount in the previous month has risen above or fallen below 10 cents/b.

The Oman spot market is backed by Shell which buys the unsold cargoes. Participants in this are trading firms, including Japanese, as well as most equity producers in the sultanate who sell an important part of their crude on the spot market. In the lead is Shell, the main equity producer, followed by Total. Spot trade is also backed by MOG's monthly pricing formula, which is sensitive to market forces. Most spot buying is destined for the Far East.

There is a paper market on Oman, which has expanded in recent years. Oman inter-month swaps, Oman/Dubai swaps and, in particular MOG swaps, are frequently traded. MOG swaps are based on traders' forecasts of the differential of Oman's OSP to Dubai.

The main spot buyer of Oman crude, Unipec, takes 5-6m/month. Other spot buyers are ExxonMobil, Caltex, Cosmo Oil, CPC of Taiwan, other Chinese firms and companies from South Korea. The MOG and OOC concentrate on Asia in their marketing efforts, allowing their crudes to be resold by term lifters. Term clients include Japanese refiners and traders and firms from South Korea, Taiwan, China and India. Some of them are also clients of Shell and Total.

Shell's term pricing is a barometer for the Gulf market. Shell sets the term price at a premium over MOG. Total has term clients for about 65,000-75,000 b/d. Among them is Unipec. Apart from their equity crude entitlements, Shell and Total buy back crudes from the MOG.

Unipec, a trading unit of China's top state refiner Sinopec, in October agreed with Shell to keep its term Oman supply unchanged at 20 cargoes or 10m barrels in its renewed contract for 2006. Sinopec, Asia's largest refiner, has nearly doubled its term crude imports from Kuwait to 30,000-40,000 b/d this year, from 2005's 20,000 b/d. The deal with Shell, though just a fraction of China's total Oman crude intake, is closely watched by traders as Sinopec, the biggest lifter of the grade, has an increasing influence over the Middle East's most actively traded spot crude. Unipec pays Shell 2-3 cents/b above MOG, versus a 5-cent premium in 2005. Unipec has become much more active in the spot Oman market than a few years back, thanks to Shell's attractive pricing.