Middle East Spurs New Pricing Mechanism in Refining Industry

In recent years, the long-standing situation in the Middle East of producing large volumes of crude oil but limited refining capacity is quietly changing. To extract greater value from fossil fuel resources, member states of the Gulf Cooperation Council (GCC) have continuously expanded their refining capacity, giving rise to new pricing mechanisms for refined products and the refining industry.

Since 2017, refining capacity in the Gulf region has increased by one-third, reaching 10.5 million barrels per day (bpd). This growth has driven gasoline production in the region from 1.7 million bpd to nearly 2.4 million bpd, while gasoline exports have doubled to 654,000 bpd. However, the substantial increase in refining capacity has also created pricing challenges, as Middle Eastern petroleum products now reach far broader markets than before. Historically, Gulf petroleum product prices were based on Singapore market prices, adjusted for freight costs—a method that made sense when Singapore was the largest buyer of Middle Eastern gasoline. Today, however, Singapore purchases only 7% of the region's gasoline exports, with Pakistan, the United States, Australia, the Red Sea region, and the east coast of Africa emerging as major buyers of Gulf petroleum products.

This shift has forced Gulf countries to adopt new pricing mechanisms that better reflect local market fundamentals.

Gulf nations are currently implementing a new mechanism called "MEBOB," published by Argus Media, forming a corresponding system with Europe’s "EBOB" and America’s "RBOB." EBOB, or the Argus European Benchmark Octane Blend, is the core pricing reference for the northwestern European gasoline market, widely used in supply contracts, financial products, and futures contracts. It also serves as the benchmark for measuring "crude-to-gasoline margins," published by Argus Media and utilized by refiners, traders, logistics companies, analysts, and government agencies. RBOB, or "Reformulated Gasoline Blendstock for Oxygen Blending," is a gasoline component futures contract traded on the New York Mercantile Exchange (NYMEX) under the CME Group. When blended with ethanol, it produces reformulated gasoline and serves as a key benchmark for investors participating in energy markets and speculating on finished fuel prices. The introduction of MEBOB alongside EBOB and RBOB establishes the Middle East as a new hub for oil product trading.

Market participants at Argus Media believe that Gulf refined product prices should reflect the intrinsic value of products in the region, which will play a positive role in global refined product trade. This new mechanism is not merely a technological innovation but also recognition of structural shifts in the global energy market.

Meanwhile, GCC member states are realizing value from oil and gas resources through innovative approaches. Four years ago, the UAE launched Murban crude oil trading to compete with Brent and West Texas Intermediate (WTI), introducing Murban crude oil futures contracts to create an alternative benchmark for Middle Eastern crude trading. These contracts are listed on the newly established Abu Dhabi International Exchange (IFAD), with partners including BP, CNPC, TotalEnergies, Eneos (formerly JXTG), INPEX, PTT, and Korea’s GS Caltex.

Murban crude is a light, low-sulfur crude with a sulfur content of 0.78% and an API gravity of 39.9 degrees. Murban crude is transported via ADNOC’s pipeline network from the Habshan fields and Jebel Dhanna storage facility to Fujairah, providing an export route bypassing the Strait of Hormuz, thus ensuring physical delivery and export capability, making it viable as a benchmark price. Currently, ADNOC is constructing a large underground storage facility in Fujairah, touted as the largest of its kind globally. The project comprises three storage caverns with a total capacity of 42 million barrels. With a $1.2 billion investment, the facility is being built by South Korea’s SK Engineering & Construction and was originally scheduled to begin operations in 2023 but faced delays due to the pandemic.

In 2024, trading in Murban crude oil futures has significantly intensified, with quarterly volumes repeatedly breaking records. In the second quarter alone, trading volume reached 1.5 billion barrels—more than double the pace seen at the beginning of the year. June saw record-breaking performance across all metrics, with average daily trading volume hitting 31 million barrels and a single-day peak of 57,300 contracts (equivalent to 57.3 million barrels). This growth indicates that Murban crude is no longer a niche crude variety confined to the Gulf region but is evolving into a globally influential benchmark price.