Dubai M1/M3 spread holds at +$2.50/b, OPEC+ fallout set to tighten market

London (Quantum Commodity Intelligence) – Benchmark Middle East Dubai crude retreated by around 3.5% Wednesday, catching up with the sharp sell-off in Brent and WTI the previous day, with sour crude supplies expected to remain tight for the remainder of the year.

In particular, the absence of an OPEC+ deal, which was due to add 400,000 barrels per day of crude for five consecutive months starting in August, is likely to keep markets hungry for oil.

Quantum assessed Dubai cash for September delivery on Wednesday at $73.25/b, down $2.60/b from Tuesday, which would typically lead to a narrowing of the prompt intermonth spreads.

However, the closely-watched Dubai cash first-line versus third line (September vs November) spread was assessed at $2.50/b, unchanged on the day and the strongest M1-M3 spread since December of 2019 - a dynamic that shows the fundamental market is very tight.

Sep/Oct was assessed at +$1.45/b and Nov Dec at $1.05/b.

The production stand-off between Saudi Arabia and UAE shows no sign of abatement, as the latter maintains its stance for a higher baseline production level of around 3.8 million bpd.

The OPEC+ group is under pressure to find a solution, including from the US administration, but despite ongoing negotiations there appears to be no quick fix on the horizon.

Saudi oil minister Prince Abdulaziz bin Salman has reiterated that the current OPEC+ agreement remains in place, which means 5.7 million bpd will be kept off the market.

A near week-long holiday starts in the Middle East on July 19, which means a resolution would be needed before that date if the proposed August increase of 400,000 bpd is to be implemented. 

The market already faces a supply/demand squeeze for the remainder of the year with consumption growth seen at 2-3 million barrels per day, according to forecasts.

Robin Mills, chief executive of Qamar Energy, writing in the UAE newspaper The National said; "Immediate production increases could go ahead while the OPEC+ committees take their time to reassess the baselines, but this is inherently a political rather than technical decision.

"Changing quotas brings winners and losers and is always hard for OPEC to achieve." much harder than it was entering into it."