Dubai crude rallies 3%, Brent/Dubai spread widens - focus to switch to demand

Quantum Commodity Intelligence - Middle East crude oil benchmarks rallied strongly over the week ending September 17, as the slow return to total production in the Gulf of Mexico following Hurricane Ida restricts global supplies, while both OPEC and the International Energy Agency see strong demand growth in the fourth quarter.

Front-month Dubai cash for November delivery was assessed Friday at $73.05/b (1630 Singapore time), up from $70.87/b at last Friday's close, an increase of 3.1%.

However, Middle East sour barrels lost value against lighter counterparts with ICE Brent futures for November at the Asia close trading at $75.30/b, up 3.5% from the Asian close last week.

The Brent/Dubai cash spread was valued at +$2.24/b compared to +$1.85/b on September 10, while the November EFS was also wider at around $3.70/b – both spreads have hit multi-week highs in the last two days.

DME Oman futures for November settled at $73.43/b at the Asia close, compared to last Friday's settle of $71.01/b. The October Brent/DME Oman spread was +$1.86/b, compared to $1.71/b the previous week.

Meanwhile, light sweet Murban for November trading on Abu Dhabi's IFAD exchange settled at $74.22/b versus $71.57/b last week, a gain of 3.7%, underpinned by firmer distillates demand.

The November ICE Brent vs Murban spread was down just $0.08/b at +$1.07/b, while Murban futures vs Oman futures was $0.23/b wider at +$0.79/b.

Looking ahead to next week, the market is expected to refocus towards the demand side with recent supply problems largely priced in.

Over 70% of US offshore production has now been restored, but combined losses from the Gulf along with disruptions in Libya and West Africa could largely negate three months' worth of OPEC+ production hikes, based on 400,000 bpd each month from the producer alliance.

"Demand for oil is set to grow noticeably in the coming months. For October, the IEA envisages an above-seasonal increase of 1.6 million barrels per day plus further growth by year's end," said Commerzbank.

"So even if oil production in the Gulf of Mexico normalises again, the market will remain tight because demand is likely to increase more sharply than the OPEC+ oil supply."