Dubai crude slumps on week amid demand slowdown concerns
Quantum Commodity Intelligence – Middle East crude prices fell sharply during the week as investors remain unconvinced over the latest package cuts announced by OPEC+ while faltering demand growth is expected to tip the market into a surplus for Q1.
Quantum assessed front-month Dubai cash for February delivery at $76.09/b in the week ending 8 December versus $81.30/b for the same contract on 1 December, a drop of 6.4%.
While the OPEC+ deal flagged a headline 2.2 million bpd of cuts in the first quarter, this included 1.3 million bpd of voluntary cuts from Saudi Arabia and Russia already in place since July. Investors were also sceptical about the balance of the announced cuts, given the voluntary nature of the package of reductions.
Midweek comments from Saudi Arabia's energy minister that he expects the cuts to be fully implemented helped to calm markets, albeit briefly, but a further joint statement from Riyadh and Moscow calling for members to implement the cuts fully helped markets rebound on Friday.
Next week sees the publication of key reports from EIA, OPEC and the IEA. In particular, traders will be looking for signs of a downward correction in demand, with OPEC so far remaining bullish on the 2024 outlook.
"The latest slump in prices to a five-month low is primarily due to fears of an oversupply at the start of next year despite the cuts agreed by OPEC+," said Carsten Fritsch of Commerzbank.
US production remains close to record highs and while exports have dropped off slightly, traders expect volumes to return to above 5 million bpd in the coming weeks with the arbitrage open to both Europe and Asia.
Meanwhile, the market was left underwhelmed after the US government said that physical constraints would limit monthly volumes to around 3 million barrels in its bid to restock the Strategic Petroleum Reserve.
Little support came from China, as crude oil imports continued to fall in November, hitting the lowest level in four months. Moody's delivered a further blow by cutting its outlook for Chinese sovereign bonds to negative.
Premiums for physical barrels loading in February sunk to the lowest levels since Russia's invasion of Ukraine before improving slightly at the back end of the week.
Key medium-sour tradeable grades, including Oman, Al Shaheen and Upper Zakum, were valued in the Dubai swaps +$0.50-$0.70/b range on Friday, while traders said Oman and Murban were the weakest 'Dubai basket' grades.
Earlier in the week, Saudi Aramco trimmed OSPs for Asia, its first reduction since June of this year, while prices for Europe and the US were also reduced. However, the flagship Arab Light was reduced by a relatively modest $0.50/b to Platts Dubai/DME Oman +$3.50/b, which refiners said makes the grade expensive against spot market alternatives.
The prompt Dubai structure also retreated with the M1/M3 (Feb24/Apr24), which National Oil Companies use in OSP calculations, at around +$0.50/b on Friday, down $0.45/b on the week for the same spread.
ICE Brent futures for Feb24 were valued at $75.62/b at the Asia close Friday (1630 Singapore), down 6.2% versus last week's Asia close of $81.25/b, leaving the Brent/Dubai cash spread for February at around -$0.50/b, slightly down on the week.
DME Oman futures were valued at $75.85/b for Feb24, with the benchmark futures contract slightly lagging cash Dubai.
Light-sweet Murban crude futures trading on Abu Dhabi's IFAD Exchange were down 6.15% on the week at $76.09/b for the Feb24 contract.
In the tanker market, VLCC rates eased slightly, with the Middle East Gulf-Far East around Worldscale 65, while brokers pegged long-haul US Gulf-Ningbo steady at above $10 million on a flat rate with the narrow Brent/Dubai EFS again underpinning arbitrage flows from the Atlantic basin to Asia.