Dubai crude tumbles 4% on week as China's Covid cases spiral
Quantum Commodity Intelligence - Middle East benchmark Dubai crude retreated for a third consecutive week as concerns over slow demand growth, particularly in China, and fears over competition from a glut of discounted Russian crude saw Asian sour crude prices slump.
Front-month Dubai cash for January delivery was assessed by Quantum at $81.00/b in the week ending 25 November versus $84.35/b the previous Friday, down 4%.
The weekly loss came despite Friday's strong rebound that lifted Dubai by more than $3/b and off the 11-month low of $77.64/b in the previous session.
Markets started the week under pressure following a report in the WSJ suggesting Saudi Arabia was set to propose a 500,000 bpd output increase when OPEC meets in early December, which at one point sent crude prices tumbling 5%.
However, prices rebounded after Saudi state media issued a statement on behalf of the oil minister denying such talks had taken place.
Sentiment has since been dominated by China's failure to get the latest Covid outbreaks under control despite widespread lockdowns, while talks on the Russian oil price cap also weighed on Asia.
China continues to report record numbers of Covid cases, impacting around a fifth of the country's GDP, on par with the economic impact of Shanghai's shutdown in April. Some 21% of China's total GDP is now under lockdown, up from 9.5% per cent a month ago, according to a Nomura report published on Thursday.
Meanwhile, reports that officials are discussing a price cap in the $65-$70/b range, a substantial increase on the widely-touted $60/b.
Traders said Urals is currently available at discounts of around $20/b to Dated Brent, which at current levels puts the Russian grade firmly within the $65-$70/b range, and the higher price would likely keep Russian output close to current levels and add to the flows of Urals already heading to Asia.
As a result, Dubai lost further ground to its Brent counterpart, as the Brent/Dubai cash spread at one point widened to over $7/b before crunching back to $5/b on Friday.
Structure
The prompt Dubai market structure remained under strong downward pressure as the M1/M3 Dubai spread (Jan23/Mar23), set a yearly low of $0.85/b on Thursday before rebounding to close the week around +$1.50/b.
Furthermore, Dubai spreads for the first half of 2023 crashed into contango, with the first five intermonth spreads of the new year showing a negative structure on Thursday.
Premiums for flagship medium sour grades, including Oman, Upper Zakum and Al Shaheen, also slumped to the lowest levels of the year, with buying interest as low Dubai swaps +$1/b.
ICE Brent futures for Jan23 were priced at $86.00/b at the Asia close Friday (1630 Singapore), down $4.01/b on the week, or 4.45%.
DME Oman futures at 1630 Singapore time were 4.2% lower at $84.17/b for the Jan23 contract, dipping below cash Dubai.
Light sweet Murban crude futures trading on Abu Dhabi's IFAD Exchange were the strongest performer, dropping by less than 1% to close the Singapore week at $88.15/b for the Jan23 contract, as soaring freight costs make competing Atlantic Basin crudes more expensive for Asian refiners.
