Dubai crude forward structure rebounds strongly as Q1 oversupply fears recede

13 Jan 2022

Quantum Commodity Intelligence - The benchmark Dubai crude forward curve has recovered strongly since the start of January and the multi-month lows registered in December, with analysts citing a combination of growing demand optimism, weaker output growth and diminishing fears of an inventory buildup during the first half of the year.  

The one-year Dubai cash forward curve measuring the Mar22/Feb23 spread, which is the equivalent of Jan22/Dec22 Dubai swaps curve, was assessed by Quantum at $8.32/b Thursday, compared to under $6/b in late December and a seven-month low of around $4.50/b on December 10.

By contrast, the one-year curve had briefly hit a post-pandemic high of over $10/b in November, prior to the emergence of the Omicron variant.

However, backwardation narrowed sharply with the rapid global spread of Omicron, proposed releases from strategic reserves, fears of an economic slowdown in China and dire warnings of oil inventory builds in the first half of 2022.

“Towards the end of last year we had the Omicron concerns, China concerns and the SPR concerns. All three of those have reversed right now and the bottom line is inventories are drawing,” said Jeff Currie, head of commodities research at Goldman Sachs, in a recent interview with CNBC.

Earlier this week, Federal Reserve Chair Jerome Powell said he was comfortable the US economy can handle the Omicron variant, which was taken as a bullish signal for global oil prices.

On the supply side, a number of OPEC+ members are struggling to meet output targets as spare capacity is exhausted, while supply disruptions in the likes of Libya, Nigeria and Kazakstan have also underpinned market structure. 

At the front end the M1/M3 Dubai cash spread (Mar22/May22), which is closely monitored by National Oil Companies in the Middle East, has made solid gains from under +$1/b in the final week of December to +$1.88/b Thursday.

This is likely to prompt an increase in Saudi’s Official Selling Prices for March, after Aramco and other NOCs applied deep cuts to February OSPs following the sharp narrowing of the market structure last month.