Dubai Feb. crude average up 2.5% on Red Sea disruptions

Quantum Commodity Intelligence – The average price for Middle East Dubai crude climbed for a second consecutive month in February, as the East-of-Suez benchmark maintained the relatively firm start to 2024.

The Quantum average price for Dubai was $80.89/b for April-loading barrels versus $78.85/b on March-loading crude, a gain of 2.6%, with the market again underpinned by geopolitical tensions along with Middle East producers wearing the bulk of OPEC+ cuts.

But on an expiry-versus-expiry basis, Dubai dipped from $82.40/b to $81.80/b as February was unable to match the firm January expiry, with the 29 Jan. print of $83.28/b still the highest of 2024. However, markets recovered from early-month losses after prices dipped to a February low of $77.40/b as a peace deal looked near at one point.

The rebound was again underpinned by shipping disruptions through the Red Sea with two oil tankers – the M/T Pollux carrying crude and the Marlin Luanda shipping naphtha – taking direct hits in recent weeks, while more recently, the M/V Torm Thor had a near miss.

The February trading cycle closed out as negotiations over a temporary Ramadan ceasefire in Gaza continued, but analysts said that even in the event of a pause in hostilities between Israel and Hamas, there is no assurance that Houthis would also suspend attacks on commercial vessels.

Few operators are now willing to take the risk of moving cargo via the Bab-el-Mandeb Strait, a hotspot for Houthi activity around the narrow chokepoint separating the Red Sea from the Gulf of Aden/Arabian Sea, while underwriters have withdrawn insurance.

While not directly threatening energy supplies, diverting tankers adds significantly to the journey time, while escalating tensions in the region also increases the likelihood of the Strait of Hormuz becoming a flashpoint.

Urals

Urals crude – which has become a mainstay for refiners in India and, to a lesser extent, China – also faces disruption, which in turn has helped shore up similar-quality Middle Eastern grades such as Oman and Upper Zakum.

Russian crude had initially been given safe passage transiting via Yemen, but the increase in attacks has forced many operators to reroute cargoes, particularly after Houthi militants targeted the M/T Pollux, which was carrying Russian crude bound for India.

The situation on shipping Russian crude has also been exacerbated by a crackdown on operators transporting Russian barrels that have sold above the G7 price cap of $60/b, with a growing number of owners said to be exiting the business.

But the market continues to face uncertainty on the outlook for demand, with geopolitical tensions only doing so much to offset economic headwinds, including a sluggish recovery in China and a higher-for-longer US interest rate policy.

OPEC sees demand growth at 2.2 million bpd in 2024, reaching a record 105.4 million bpd, "reflecting the robust economic growth expected this year," before rising another 1.8 million bpd in 2025.

But OPEC's robust outlook remains in direct conflict with the International Energy Agency, which stuck with its forecast for a modest 1.2 million bpd demand growth this year, arguing that "global oil demand growth is losing momentum."

Partials

Meanwhile, February's physical activity has dominated the Dubai partials market with a final flurry of convergences taking the monthly tally to around 60 cargoes, the highest number since June 2023 and one of the largest volumes on record.

This included the equivalent of the entire Oman export programme nominated via the Dubai MOC process, according to trading sources.

Asia cash December Brent averaged $81.44/b over the month based on the 1630 Asia close, up 3% from last month's average of $79.06/b. Brent/Dubai averaged +$0.55/b, slightly higher on the month following a strong Brent expiry.

According to Quantum data, the Middle East light sweet Murban average was up 2.5% on the month at $81.02/b.

US benchmark WTI averaged $76.32/b based on the M2 contract at 1630 Singapore, up from $73.75/b the previous month for a gain of 3.5%, making it the best-performing crude benchmark in February.