Dubai crude futures avert contango as market mulls additional production cuts

Singapore — Dubai crude future spreads paused short of flipping into the contango that took hold of Brent futures markets earlier this week, with the Middle East sour crude market taking a breather amid an ongoing OPEC+ meeting.

In fact, intermonth spreads for Dubai crude futures actually firmed a tad mid-morning Wednesday in Singapore, with consideration of an additional OPEC+ cut a likely outcome of this week's meeting of the technical committee in Vienna.

The March/April Dubai crude futures spread was pegged at 7 cents/b at 11 am in Singapore (0300 GMT), up slightly from 5 cents/b assessed at the 0830 GMT close of trading in Asia on Tuesday.

OPEC and its partners, collectively known as OPEC+, are under pressure to stem a 20% plunge in oil prices since news of the coronavirus first broke, with Saudi Arabia and other members pressing the bloc to institute immediate production cuts of some 500,000 to 1 million b/d, according to sources. That would be on top of the 1.7 million b/d in curbs that OPEC+ began instituting in January.

The April/May intermonth spread strengthened more in comparison, with any additional OPEC+ production cuts expected to take effect from April at the earliest. Middle East crude oil producers making up a big chunk of the producer group are in the midst of firming March crude loadings with their customers this month.

The April/May spread ticked up to 13 cents/b at 11 am Wednesday, while it had been assessed at 3 cents/b Tuesday evening in Singapore.

Meanwhile the Brent/Dubai Exchange Futures for Swaps spread was little changed Wednesday morning during Asian trading hours. The EFS spread was assessed at $1.46/b Tuesday evening, and was pegged at $1.43/b Wednesday morning in Singapore.

The slight tightening of the spread could indicate an underlying shift in sentiment for Middle East sour crude away from bearish coronavirus-led jitters currently gripping global oil markets. However, the relatively small size of the move may indicate that Middle East oil market participants will wait for a concrete decision on production balances from OPEC+ before pricing it in to a significant degree, said traders.

Elsewhere in Asia, official selling prices from Middle East producers started to trickle in during the week. Qatar Petroleum on Tuesday announced OSPs for its January loading cargoes, with March loading prospective OSPs from the state-owned entity expected in the coming days. UAE's ADNOC also issued its January OSPs overnight, with price differentials for its grades slashed between 80 to 90 cents/b from December.

Traders told S&P Global Platts they had readjusted their views on OSPs lower this month on the back of slower oil demand, GDP and related economic factors stemming from the coronavirus.

The Dubai market structure -- a core indicator of market sentiment in the Middle East crude arena -- averaged $2.11/b over January, but dropped to 88 cents/b on the first trading day of February. It was assessed at 52 cents/b on Tuesday.