Dubai forward curve strengthens on expected demand/supply deficit

23 Jul 2021

London (Quantum Commodity Intelligence) – The Dubai physical market structure has rebounded strongly since initially coming under pressure in the aftermath of OPEC+ agreement to increase production by 400,000 barrels per day each month for the rest of the year.

The M2/M4 (October/December) Dubai cash spread was assessed Friday at +$2.16/b, compared to $1.68/b on Monday, according to Quantum data.

The October/December cash spread is the equivalent to the August/October Dubai swaps spread.

Further down the curve the October21/October21 cash spread (August21/August21 swap equivalent) has strengthened by more than $1/b this week, assessed at $6.87/b on Friday compared to Monday’s $5.78/b.

Deficit

The strengthening of the Dubai curve comes after several forecasts suggest the market will remain in deficit, despite OPEC+ adding 2 million bpd of crude by the end of the year.

The strengthening curve also appears to signal the market discounting significant demand erosion as a result of the Covid-19 variant.

Goldman Sachs said earlier in the week, “our bottom-up estimate of the impact that a Delta wave could have on global demand points to a potential 1 million bpd hit for only a couple months, and even less if vaccines prove effective at lowering hospitalizations."

Goldman added that it now forecasts a 3Q 2021 supply/demand deficit of 1.5 million bpd (vs. 1.9 million bpd previously) and a 4Q deficit of 1.7 million bpd, ‘that is increasingly concentrated in OECD markets’.

Morgan Stanley said that despite the OPEC+ agreement to add 400,000 bpd each month up to the end of the year, plus a 400,000 bpd growth forecast for US output between Q2 and Q4, “we still see the market in a stronger deficit in the second half even compared to the first half of 2021.”