Dubai crude climbs to 10-week highs, up 5% since Saudi cut
Quantum Commodity Intelligence – Benchmark Dubai prices climbed to 10-week highs Tuesday, extending the gradual gains since Saudi Arabia announced last Monday it would extend its voluntary crude oil production cuts of 1 million bpd into August.
Quantum assessed front-month Dubai cash for September delivery at $78.80/b on 11 July, the highest print since 29 April, while prices have rallied almost 5% since Saudi's announcement at the start of the month.
Dubai dipped below $72/b on two occasions during the first half of June, as recessionary and demand slowdown fears weighed heavily on markets.
Asia has largely led the crude price rebound, while the OPEC+ cuts have created a global crunch on heavier barrels, including medium sweet grades such as Oman, Upper Zakum and Al Shaheen, which are the main components of the Dubai 'basket' of crudes.
Brent/Dubai swaps spread first inverted on 19 June, coinciding with the near-record volumes transacted in the Platts-operated MOC trading window, but Dubai has maintained its premium to Brent during July.
Although Dubai is considered less illustrious than its Brent or WTI benchmark counterparts, it acts as a barometer for Asia's demand appetite – by far the world's most significant oil-importing region.
Structure
The prompt Dubai structure has also strengthened considerably since the two-year lows registered at the start of June when the M1/M3 spread sunk to around $0.50/b, the weakest in over two years.
Sep23/Nov23 has averaged around +$1.30/b so far in July, peaking at around +$1.50/b on Friday, about double that of the Brent M1/M3 spread, while WTI M1/M3 is around $0.35/b.
At last week's OPEC Seminar, Energy Aspects' co-founder Amrita Sen highlighted Dubai backwardation, a key indicator of stronger fundamentals, commenting, "I don't doubt it for a second that the market is going to start tightening."
The crunch in sour barrels has also been felt West of Suez as Middle Eastern suppliers have curtailed west-bound shipments, while the suspension of the Iraq-Ceyhan export pipeline, Canadian wildfires and an interruption to Mexican production have tightened the market.
Additionally, Russian Urals is now by and large part of the Asia supply chain, with European refiners struggling to find replacements for the medium-sour grade.
Equinor's heavy-sweet Johan Sverdrup from the North Sea has rocketed to in excess of $3/b above Dated Brent, having fetched discounts of $6-$7/b last year, representing a swing of around $10/b against the Dated benchmark.
In the US Gulf, the flagship Mars Blend is at multi-year highs of around $2/b over WTI Cushing, while other sour barrels are trading at elevated premiums to WTI futures.
While supplies of heavier barrels are in short supply, lighter grades from the Atlantic Basin are seen as more than ample, which has also impacted light versus heavy spreads.
In the products market, the crude spread inversion has been manifested in the slump in naphtha cracks, in contrast with the surge in heavy fuel oil values.
