Physical crude markets under pressure, Dated Brent premiums weaker

Quantum Commodity Intelligence – Physical crude markets have come under downward pressure during the second half of October, flagging a potential slowdown in demand as global refining margins retreat.

Premiums for grades trading in the Dated Brent market, the world's most important physical oil benchmark, have seen sharp declines this week, with buying interest ebbing away.

The Brent CFD market, which acts as a gauge for forward Dated Brent, has come under heavy selling pressure, while spot Dated premiums are also weaker.

The front-week CFD for the Nov 30-Dec 03 period slumped from +$2.50/b versus the underlying Dated swap at the start of the week to around +$1.70/b on Wednesday, although it has recovered slightly. Spot Dated Brent has followed a similar pattern this week, said brokers, also valued at around Dated +$1.70/b for physical cargoes.

"Europe is not looking very good at all, even front-end oil demand for barrels is not looking brilliant," oil analyst and trading veteran Adi Imsirovic told Thursday's Gulf Intelligence energy markets podcast.

Imsirovic also noted that premiums in the wider Atlantic Basin have also come under pressure, referencing a buildup of unsold spot barrels from West Africa.

"I notice Angolan December programmes are out and November cargoes are not all sold yet," he said, adding West Africa was a reliable bellwether for spot demand, supplying both East and West markets.

East of Suez

The slide in spot premiums for East of Suez markets has already been in place since the second week of October, as a crunch on refining margins prompted speculation that some Chinese independent refiners could trim runs unless profits pick up soon.

Key medium-sour tradeable grades, including Oman, Al Shaheen and Upper Zakum, were all trading comfortably above Dubai swaps +$3/b early in the month but have since retreated to around +$2.30/b.

Traders said the December cycle has largely been completed and while January cargoes have yet to trade, premiums for the flagship medium-sour grades were indicated at below Dubai swaps +$2/b, the lowest in around two months.

On the US Gulf Coast, premiums for WTI Midland were heard at around $0.20/b over WTI futures, down from around +$1/b earlier in the month, reflecting weaker demand for the export grade.