Dubai crude slumps 7% on week as economic concerns weigh
Quantum Commodity Intelligence – Middle East benchmark Dubai crude faced another tumultuous week, with prices retreating for a third consecutive week as economic woes dragged global benchmarks lower.
Quantum assessed front-month Dubai cash for July delivery at $73.25/b in the week ending 5 May, versus $78.71/b for the same contract the previous week, for a fall of 6.95%.
The Middle East benchmark has dropped over 16% since last month's high of $87.30/b, now standing almost $5/b below levels prior to the OPEC+ cut announcement at the start of April.
Oil markets started the shortened Singapore week on a negative note as data revealed China's manufacturing activity unexpectedly contracted in April, as the official manufacturing purchasing managers' index (PMI) fell below the 50-point mark separating monthly expansion and contraction to 49.2 in April.
But ultimately it was the US and the broader macroeconomic picture that dominated the week's proceedings on crude oil.
The Federal Reserve hiked rates by 25 bps at its May FOMC meeting on Wednesday, a move largely in line with expectations, but Fed Chair Jerome Powell later indicated rate hikes would pause for now.
This helped stabilized global prices, although further banking and debt concerns in the US made for just a modest recovery at the back end of the week.
"This banking crisis might make the oil market start pricing a much worse recession for the US, which is bad news for the crude demand outlook," said Ed Moya, senior market analyst at brokerage Oanda.
OPEC producers have so far been largely silent on the price slump, but reports the group will hold an in-person meeting in early June prompted speculation the alliance is willing to take further action if need be.
Asia refiners were given a boost as Saudi reduced OSPs for June crude, although the $0.25/b cut on flagship Arab Light crude was unlikely to do much for overall margins.
Physical
Premiums for physical barrels continued to struggle amid the declining refining margins, with mainstay medium-sour grades loading in July, including Oman, Upper Zakum and Al Shaheen, valued at Dubai swaps +$1.55-$1.75/b.
The prompt Dubai structure steadied as the M1/M3 (Jul23/Sep23), which is used by National Oil Companies in OSP calculations, was assessed at $1.55/b, down from $1.65/b on the same spread last week.
ICE Brent futures for Jul23 were trading at $73.35/b at the Asia close Friday (1630 Singapore), down 6.95% on the week, maintaining the Brent/Dubai spread for July at around +$0.10/b.
DME Oman futures were initially trading at a discount to Dubai early in the week, although by Friday had moved to near parity, closing at $73.24/b.
Meanwhile, light sweet Murban crude futures trading on Abu Dhabi's IFAD Exchange were largely tracking Brent, also settling Friday at $73.24/b.
In the tanker market, VLCC rates for Middle East Gulf to Singapore were quoted close to Worldscale 50, having lost further ground following the announced OPEC+ cuts.
Rates did not, however, react to Iran seizing two tankers from the Strait of Hormuz: "In times of old, we would have seen a big shift in owner's attitude. At present, however, little if any effect on rates, at least for now," said tanker brokers Fearnleys.
