Dubai futures spreads ease on price, supply cuts

Singapore — Contango spreads on Dubai futures eased somewhat Wednesday morning, as market participants in Asia digested a third round of price cuts from Middle East sour crude producers, and a report from the US Energy Information Administration revising global oil production forecasts downward for 2020.

Intermonth spreads were seeing increased volatility in the Dubai paper markets in Asia Wednesday morning, according to crude brokers that spoke to S&P Global Platts.

"Hard even to [pin the numbers down as] things keep moving so fast," a Singapore-based broker said.

The March/April Dubai crude futures spread, which had been assessed at minus 26 cents/b at the 0830 GMT Asian close on Tuesday, was a few notches up at minus 17 cents/b by 10 am Wednesday morning (0200 GMT) in Singapore.

Similarly, the April/May spread assessed at minus 23 cents/b Tuesday, was pegged at minus 10 cents/b Wednesday morning.

A third round of official selling prices were issued overnight by Middle East producers. Iraq's State Oil Marketing Organization cut the OSPs of its Basrah Light and Basrah Heavy grades, scheduled to load in March and head to Asia, by 75 cents/b and 25 cents/b, respectively, from February, a notice issued by the company showed late Tuesday.

Basrah Light cargoes heading East in February will now be priced at a premium of $1.80/b to the mean of Platts Oman/Dubai assessments in that month. This was down 75 cents from February.

SOMO also cut the Basrah Heavy Asia OSP for March by 25 cents, taking it up to a discount of $1.30/b to the January Oman/Dubai average.

The cuts are deeper than initially expected due to the magnitude of the fall in global oil markets in recent days, traders told Platts. Market participants had initially expected a 50 cents/b cut for Asia-destined Basrah Light, and no change for the Basrah Heavy March OSP.

Iranian prices were also issued overnight, with state-owned National Iranian Oil Co. cutting the OSP differential for its Iran Light crude, loading in March and headed to Asia, by 80 cents/b on the month to a premium of $2.55/b to Oman/Dubai, according to data published on the company's website.

Meanwhile, the US Energy Information Administration revised global oil and OPEC production forecasts lower for 2020, with additional 500,000 b/d cuts from OPEC+ being a key assumption in the latest report, published Tuesday.

The EIA now expects OPEC production to average 28.93 million b/d in 2020 and 29.21 million b/d in 2021, it said in the latest Short-Term Energy Outlook.

It expects OPEC to make additional cuts of 500,000 b/d from March through May in response to lower global demand in early 2020, including from travel restrictions related to the coronavirus outbreak.

The report said EIA expects OPEC to limit production through all of 2020 and 2021 to "target relatively balanced global oil markets."