Dubai crude slumps $10/b on week, market structure holds firm

24 Jun 2022

Quantum Commodity Intelligence - Middle East crude oil finished the week ending 23 June nearly $10/b lower, although the majority of the losses were registered in the sharp selloff last Friday after Asian markets had closed.

Front-month Dubai cash for August delivery was assessed by Quantum on Friday at $106.50/b versus $116.30/b on 17 June, down 8.43%. However, Dubai dropped nearly $8/b from Friday to Monday, and only $2/b since.

Crude markets have been torn all week between recessionary fears capping oil demand growth in the 2H of of the year, against the tightening supply/demand balance and record cracks for distillates and gasoline.

“The refined product market has failed to respond (negatively) to the macro-economic focused selloff in crude. A clear sign this correction has few legs to stand on as long the physical market remains this tight,” said Ole S Hansen, Head of Commodity Strategy at Saxo Group.

Underlining physical market tightness, the key M1/M3 (Aug22/Oct22) spread, which is closely monitored by regional producers for OSP purposes, was assessed at a three-month high of close to +$8/b, up by around $0.40/b on the week, while the one-year curve was slightly softer at +$22/b.

ICE Brent futures for Aug22 were pegged at $110.68/b at the Singapore close Friday (1630pm Singapore), down $9.60/b on the week, or 8%, maintaining the Brent/Dubai cash spread for August at around $4/b.

The August Brent/Dubai EFS widened $0.50/b on the week to just above $12/b, making Brent-related import barrels a pricey option for Asian refiners.

DME Oman futures closed the week 8.44% lower at $105.51/b for the Aug22 contract, again largely tracking cash Dubai.

Bucking the trend, light sweet Murban crude futures trading on Abu Dhabi's IFAD exchange were down just 1.9% at $117.36/b for Aug22, a massive $6.68/b over Brent.

While Murban is underpinned by strong fundamentals, including huge distillate and gasoline cracks, and expensive alternatives for refiners unable to take in Russian ESPO or Sokol barrels, market watchers said Murban futures now look overvalued.