By Florence Tan
Trade sources had earlier informed Reuters of the planned change.
The new formula will be based on the average monthly prices of Oman crude futures traded on the Dubai Mercantile Exchange (DME) and the average cash price for Dubai assessed by pricing agency S&P Global Platts, instead of the average of Oman and Dubai prices assessed by Platts, Aramco said.
Saudi Aramco's OSPs for October will be based on the average settlement prices for the DME December Oman contract and the December Dubai cash price assessed by Platts, both of which are set in October.
DME and Platts did not respond to requests for comment when contacted by Reuters.
While Saudi Aramco's decision surprised the market, a proposal to switch benchmarks has been discussed internally for years, the sources said.
The DME launched the Oman contract in 2007 and it is the most liquid physically deliverable futures contract for Middle East crude oil. In comparison, there are rarely bids or offers for Oman cargoes during the Platts market-on-close price assessment.
"It is obvious - look at the trading volumes of DME versus Platts for Oman," said Adi Imsirovic, a teaching fellow at the University of Surrey's Energy Economics Centre who wrote a paper on Middle East oil benchmarks published in 2014.
Last year, Iraq's Oil Marketing Organization (SOMO) proposed pricing its Basra crude sales to Asia on DME Oman futures starting with January-loading cargoes, but the plan was shelved.
"SOMO was the first on the case but they did not think it through nominations. SOMO went back to the drawing board. Aramco could not be left behind!" Imsirovic said.
BOOST DME TRADE
Saudi Aramco's decision could improve the liquidity for Oman futures trading on the DME and also for derivative instruments based off the Oman contract for hedging or price conversion purposes, a Singapore-based trader said.
"This is a good change as Platts Oman cannot be hedged," he said.
Saudi Aramco usually sets its monthly OSPs around the fifth of each month, and those set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia.
It was not immediately clear if the other Middle East producers will also change their benchmarks.
(Reporting by Florence Tan in Singapore; Additional reporting by Rania El-Gamal and Katie Paul in Dubai; editing by David Evans and Jason Neely)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)