Dubai crude posts slim weekly gains as Middle East tensions simmer
Quantum Commodity Intelligence – Middle East crude prices started 2024 on a reasonably firm footing, posting modest increases after a volatile week, although the geopolitical gains were largely offset by the huge draw in US product inventories.
Quantum assessed front-month Dubai cash for March delivery at $77.75/b in the week ending 5 January versus $77.25/b for the same contract on 29 December, a narrow gain of 0.65%, as markets continued to pull away from the eight-month low of $71.62/b registered on 13 December.
Markets started the week on a solid footing following the latest spate of attacks on commercial shipping in and around the Red Sea, particularly the Bab-el-Mandeb Strait, a narrow body of water separating the Red Sea from the Gulf of Aden.
The US last Sunday repelled attacks by Houthi militants aimed at three commercial vessels, leading to a number of small launch boats deployed from Yemen being destroyed by US naval helicopters, killing around 10 rebels and marking the latest escalation in the regional conflict.
While not directly threatening energy supplies, diverting tankers adds significantly to the journey time, while escalating tensions in the region also increase the likelihood of the Strait of Hormuz becoming a flashpoint – which could disrupt millions of barrels of crude leaving the Gulf on a daily basis.
Goldman Sachs head of energy research, Daan Struyven, told CNBC that any threat to the Strait of Hormuz has far greater implications than the current disruptions.
"The Red Sea is a transit route... A prolonged disruption there, oil can be three or four dollars higher. However, if you have a disruption in the Strait of Hormuz for a month, [crudel] prices would rise by 20% and could even eventually double if the disruption there lasted for longer," he said.
Oil markets were further boosted after protests shut Libya's 300,000 bpd Sharara oil field, raising the prospects of a repeat of 2022 when crude output slumped by around 50% at times during the summer – causing regular force majeure on exports – although 2023 was relatively disruption-free.
Asia markets were given a lift at the start of the week after Beijing issued crude oil import quotas for the new year totalling 179.01 million mt, a figure more than 60% up from the volume awarded in January last year.
Physical
The spot market continued to struggle, although differentials continued to pull away from December's multi-year lows. Flagship tradeable spot grades, including Oman, Upper Zakum and Al Shaheen, were all marked at premiums of $0.55-$0.65/b to the underlying Dubai swap, having dipped into negative territory last month.
The prompt forward structure also moved out of the contango seen last month with the M1/M2 (Mar24/Apr24) Dubai cash spread at around +$0.35/b and M1/M3 at close to +$0.60/b.
ICE Brent futures for Mar24 were valued at $77.93/b at the Asia close Friday (1630 Singapore), up 0.55% versus last week's Asia close of $77.50/b, leaving the Brent/Dubai cash spread for February at around +0.20/b.
DME Oman futures were valued at $77.65/b for Mar24, with the benchmark futures contract largely tracking cash Dubai and so far setting the Dubai assessment this month, along with Upper Zakum.
Light-sweet Murban crude futures trading on Abu Dhabi's IFAD Exchange were up 0.7% on the week at $77.83/b for the Mar24 contract, basis 1630 Singapore.
