Dubai crude extends July gains, refining margins soar
Quantum Commodity Intelligence – Asian crude markets maintained July's firm upward momentum as benchmark Dubai surged to the highest levels since mid-April, underpinned by supply-side constraints, soaring refining margins and an improved economic outlook.
Quantum assessed front-month Dubai cash for September delivery at $84.72/b in the week ending 28 July, versus $81.75/b for the same contract the previous week for a gain of 3.6%, while prices are up over 12.5% since the start of the month.
The relative strength in medium sour crudes has coincided with ongoing OPEC+ cuts since early in the year, including Saudi Arabia extending its voluntary crude oil production cuts of 1 million bpd into August, joined by Russia pledging to reduce exports by 500,000 bpd.
Russia has already started to cut seaborne exports this month, while traders are looking towards Riyadh for clues on production policy beyond August.
Any full or partial extension of the additional cuts is likely to be announced next week, which will be followed by Official Selling Prices for September.
Crude has also been underpinned by a surge in refining margins, including in the US, which has been bolstered by healthy demand and a series of refinery outages.
The 3-2-1 crack spread, a measure of US refining profitability based on gasoline and heating oil margins, stands at around $40/b, while the Singapore equivalent was valued at $60/b, although lower fuel and naphtha cracks moderate the overall margin.
However, Asia refiners are significantly configured towards distillates output, so reversing the gasoil/gasoline ratios would give a 3-2-1 spread of $70/b.
Global oil markets largely brushed off the 0.25% US and Eurozone rate hikes amid hopes that the cycle is coming to an end. Prices were also given a lift after figures showed US economic growth accelerated over three months ending in June, as GDP grew by 2.4%, well above the expected 1.8%.
Oil markets have also been buoyed this week after China's economic decision-making body laid out plans for the coming months to implement expansionary policies and address the current weak domestic demand.
Physical
Premiums for physical barrels consolidated at higher levels with differentials for key medium-sour grades at one point reaching four-month highs of Dubai swaps +$2/b for Oman, Al Shaheen and Upper Zakum before easing at the back end of the week.
The prompt Dubai structure also held up at firmer levels over the week with the M1/M3 (Sep23/Nov23), which is used by National Oil Companies in OSP calculations, was unchanged at $1.70/b.
Dubai also continued to trade at a premium to the North Sea Brent marker, at one point reaching a record $1.55/b, before narrowing back following improved light-ends cracks.
ICE Brent futures for Sep23 were pegged at $84.03/b at the Asia close Friday (1630 Singapore), up 3.75% versus last Friday's Asia close. The Brent/Dubai cash spread for September narrowed to minus $0.70/b versus -$1.50/b last week.
DME Oman futures outpaced cash Dubai over the week, closing Friday at $85.26/b for Sep23, up 4.4% from last week.
Meanwhile, light sweet Murban crude futures trading on Abu Dhabi's IFAD Exchange for Sep23 were 3.6% higher on the week at $84.93/b, as firm gasoil cracks underpinned the distillate-rich grade.
In the tanker market, VLCC costs were steady, with rates for Middle East Gulf to China holding in the low Worldscale 50s, while long-haul US Gulf-Ningbo was quoted around $8 million on a flat rate.
