Dubai crude eases on week, MOC dominates spot trade

Quantum Commodity Intelligence – Benchmark Dubai prices ended the week lower after an end-week selloff saw prices slump back from seven-week highs, while spot activity was again dominated by the Platts-operated Dubai crude oil window.

Quantum assessed front-month Dubai cash for August delivery at $74.10/b in the week ending 23 June versus $75.45/b for the same contract the previous week for a loss of 1.8% and having peaked at $77.45/b.

Concerns over the health of global economy and future demand outlook weighed heavily on sentiment at the backend of the week, in particular Federal Reserve Chair Jerome Powell telling a congressional testimony that two more rate hikes were likely needed this year.

Financial and commodities markets were also shaken after the Bank of England announced a surprise 50 basis point rate hike Thursday, its 13th hike in a succession, which came after a stubbornly high inflation reading of 8.7% for May.   

"These concerns have been magnified in recent days with last week's hawkish Fed meeting, followed by the bigger than expected 50bps rate hikes from the Bank of England and Norges Bank, as investors started to worry that creating a possible recession was likely to become a necessary side-effect in their willingness to push inflation back down to their 2% targets," said Michael Hewson, chief market analyst at CMC.

However, the Middle East Dubai benchmark was the best performer among global prices, cushioned by Saudi Arabia's additional 1 million bpd output cut starting from July, along with the huge surge in buying interest via the Platts MOC trading window.

Physical

Physical market activity was dominated during the first three weeks of June by the Platts-operated MOC window, which is on course for the most-liquid trading periods since 2015.

To date, 53 full crude cargoes have been transacted via the Dubai partials window, which could challenge the record of 78 in August 2015 with five trading sessions to go this month.

So far in June, some 25 million barrels of Oman have been transacted via the MOC window, while 1.5 million barrels of Upper Zakum have also been nominated.

China's Unipec has again been the primary seller, with support from trading houses, including Vitol, while PetroChina heads the list of buyers, followed by Totsa with cameos from Shell and Trafigura.

The hectic Dubai trading activity has finally lifted physical premiums which had been bouncing around two-year lows of Dubai Swaps +$0.70-$0.80/b, with key medium sour grades, including Oman, Upper Zakum and Al Shaheen, valued Friday at around Dubai +$1.50/b.

ICE Brent futures for Aug23 were trading at $73.11/b at the Asia close Friday (1630 Singapore), down 3.35% versus last Friday's Asia close. The Brent/Dubai spread for August inverted to around minus $1/b, believed to be the widest recorded outside of expiry-linked anomalies.

DME Oman futures were largely tracking cash Dubai over the week, closing Friday at $74.10/b for Aug23, down 1.7% from last week.

Meanwhile, light sweet Murban crude futures trading on Abu Dhabi's IFAD Exchange for Aug23 were 2.4% lower on the week at $74.52/b.

In the tanker market, VLCC rates continued to build on the mid-June surge, with rates for Middle East Gulf to China topping Worldscale 90, having been sub-WS 50 early in the month. Demand for long-haul shipments have supported the global market, with US Gulf-Ningbo again quoted in excess of $10 million flat rate.