Sour crude complex averts sharp correction as oversupply ebbs

Singapore —
Benchmark Dubai crude futures spreads declined in mid-morning trading hours in Asia Monday, but escaped sharp correction seen across the board as sellers of Middle East crude held back from flooding the market with excess barrels.

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Traders in the spot market were inquiring about distressed April and May loading cargoes up for resale, but no offers could be found as of Monday morning.

Sellers with excess inventory of Middle East sour crude held back from showing offers amid a lack of good bids, said market participants.

“I think in this bearish environment sellers are also playing their cards close to their chest,” said a Singapore-based sour crude buyer Monday.

The sour crude complex pushed lower Monday morning, but downside was limited compared to losses incurred in the Brent and WTI markets over the weekend, S&P Global Platts data showed.

EFS crosses new low

May Dubai crude futures was lower by 3.5% Monday morning, being pegged at $29.33/b in Singapore at 11 am (0300 GMT). The contract was assessed at $30.4/b Friday at 4:30 pm (0830 GMT) Singapore close.

But by comparison, May ICE Brent futures lost almost 10% in the same duration, being pegged at $23.28/b Monday morning. The contract was seen at $25.79/b Friday at the Asian close.

The sharp drop in Brent saw the May Brent/Dubai Exchange Futures for Swaps spread deepen to its most negative level yet, according to Platts records.

At 11 am Monday morning, the EFS spread was pegged at minus $6.05/b in Singapore.

The spread, last assessed at minus $4.61/b on Friday, flipped earlier this month as Brent’s premium to Dubai futures was eroded as both demand and supply side fundamentals weakened for European crude markets.

Demand outlook worsens

Global crude demand is forecast to contract 4.5 million b/d in 2020, according to the latest Platts Analytics monthly forecast released Friday. The decline was almost entirely attributable to the coronavirus pandemic, which has gained a strong foothold across several European countries including Italy, Spain and the United Kingdom.

Simultaneously, European oil markets are at the epicenter of a market share tussle between top oil producers Saudi Arabia and Russia, with oil prices declining as a result of heavy oversupply in the region.

Saudi Arabia’s price war has impacted Middle East crude markets in Asia as well, with spot market price differentials of grades like Murban, Das Blend and Upper Zakum shrinking this month to compete with record low official selling prices issued by the OPEC kingpin.

But as price differentials spiral downward, many sellers have chosen to shelve their inventory of cargoes, finding storage options more economical than selling cargoes at deep losses, said market participants.