Dubai forward structure crunches on large Q1 surplus ahead

Quantum Commodity Intelligence - The Dubai crude oil market structure has narrowed sharply with the fall in outright prices over the past three sessions, sending the key prompt spread and one-year forward curve tumbling to multi-week lows.

The M1/M3 Dubai (Jan22/Mar22) spread, used as a key indicator of market fundamentals by Middle East producers, was assessed by Quantum Tuesday at $2.15/b, down by around $0.85/b on the day and the lowest since 7 October.

Dubai cash for January delivery was assessed at $71.85/b on 30 November (1630 Singapore time), $3.30/b down from Monday's 1630pm Singapore close.

The global oil market is expected to move into a steep surplus during the first quarter of 2022, while the demand hit from the Omicron variant is set to distort market balances further.

An internal report prepared for the OPEC+ Joint Technical Committee (JTC) sees oil supply exceeding demand by 3 million barrels per day in Q1 2022. However, the report was compiled before the emergence of the Omicron variant, so it may be subject to further revision.

Price crash

Dubai has now crashed by $9.55/b since last Thursday, or around 12%, largely following international benchmarks Brent and WTI lower.

For the 12-month Dubai curve, the Jan22/Jan23 spread plummeted to $5.36/b Tuesday, down from $7.32/b the previous session and lowest since early September.

According to Quantum data, the one-year curve was pegged at over $9/b as recently as 24 November and briefly pushed past $10/b at the start of the month.

However, the frontline Brent/Dubai cash spread narrowed sharply to $0.45/b as Brent prices came off even harder, leading to the narrowest spread since January.

The combination of the weaker Brent/Dubai and narrower Dubai curve also saw a sharp contraction in the January EFS, which tumbled by around $1.30/b to $2.56/b Tuesday and the narrowest EFS since March.