Brent/Dubai crude futures spread narrows as Brent flips into contango

Singapore — The spread between April ICE Brent crude futures and Dubai crude futures narrowed sharply Tuesday morning after Brent spreads flipped into a contango structure overnight, with S&P Global Platts analytics forecasting weak global oil demand for February and March.

The April Brent/Dubai Exchange Futures for Swaps spread was pegged at $1.36/b at 11 am in Singapore on Tuesday (0300 GMT), sharply narrowed from $1.70/b assessed at the 0830 GMT close of trading in Asia on Monday.

Global oil prices continued their decline overnight between Monday and Tuesday, with ICE Brent futures briefly falling to a one-year low of $54.27/b before settling at $54.45/b Monday night. This led to the Middle East crude complex opening on a weaker note in Asia Tuesday morning as well.

The April/May spread for ICE Brent futures flipped into a contango of minus 16 cents/b at the settle. It was hovering around the same level Tuesday morning (0300 GMT) in Asia. April ICE Brent futures were pegged at $54.74/b at the time.

Intermonth spread for Dubai crude futures moved lower for the sixth consecutive day in a row, and look likely to follow Brent structure into contango as well if bearish sentiment stemming from coronavirus-led demand setbacks continues.

The March/April spread for Dubai crude futures was pegged at 18 cents/b at 11 am, down from 29 cents/b at Monday's close. Meanwhile, April/May was pegged at 9 cents/b Tuesday morning, while it had been assessed at 22 cents/b Monday evening in Singapore at 4:30 pm.

Market talk indicated that the current OPEC+ cuts may not be enough to quell the decline in oil prices, with traders keenly watching the outcome of an ongoing meeting of the group's technical committee for any clues as to further cuts. One OPEC source said the meeting will try to assess the expected impact of the coronavirus on oil demand and decide on what action to take.

Still, traders voiced their doubts as to the efficacy of further production cuts against the force of the coronavirus' impact on China's economy.

The outbreak is expected to blunt global oil demand by at least 900,000 b/d in February and 650,000 b/d in March, according to Platts Analytics.

The crude from OPEC+ is very exposed to the coronavirus outbreak in China as the country buys more than 70% of its crude from OPEC and its allies, making demand destruction caused by the spread of the virus critical for the cartel.

Saudi Arabia and Russia are ready for "further coordination of actions" to ensure the stability of the global oil markets as oil prices have plunged amid concerns that the coronavirus will sap oil demand in the world's largest crude oil importer China.

Russian President Vladimir Putin and Saudi King Salman bin Abdulaziz "thoroughly discussed" the current oil market conditions as prices have fallen by more than 20% in the past three weeks amid global oil demand concerns, a Kremlin statement said late Monday.

"Both sides confirmed their readiness for further coordination of actions in the OPEC plus format to ensure stability of the global oil market," the statement added. "It was agreed to continue contacts at various levels."