Widening Brent/Dubai crude futures spread fails to lift demand in Asia

Singapore — A return to a backwardated market structure for prompt ICE Brent futures lifted its premium over benchmark Dubai crude futures Monday morning in Asia, but Middle East crude spreads shrunk to fresh lows with buyers laying low over the weekend.

Market discussions Monday morning in Singapore indicated sellers were still waiting for buying requirements to emerge in the third week of the current April spot trading cycle for Middle East sour crude. With monthly term volumes being doled out last week by producers such as Saudi Aramco and Iraq's SOMO, demand for spot market barrels seemed bleak, traders said.

"This month is very slow, but I think people will start buying this week, as refinery LPs [linear programs] came in on Friday," a North Asian refinery-linked source said.

Market optimism fueled by coronavirus-related news led to a rally in Brent crude futures over the weekend, and the April/May ICE Brent futures spread was pegged at a backwardation of 14 cents/b at 11 am in Singapore (0300 GMT) Monday morning, after spending the last few weeks in contango.

The April Brent/Dubai Exchange of futures for swaps spread widened to $1.27/b Monday morning, but the rise did little to lift Middle East crude markers, with Dubai futures spreads still in contango, and weaker than at the close of Asian markets on Friday.

The EFS had been assessed at $1.07/b on Friday at the 0830 GMT close in Asia.

The March/April intermonth spread for Dubai crude futures was pegged at minus 13 cents/b Monday at 11 am in Singapore, which was down from minus 9 cents/b assessed on Friday at 4:30 pm (0830 GMT).

Similarly, the April/May spread was down at minus 2 cents/b Monday morning. It had briefly flipped into backwardation last week, and was assessed at a premium of 5 cents/b on Friday.

However, small pockets of activity start to emerge Monday, market sources said. An April-loading cargo of light sour crude was reported to have changed hands over the weekend, but few details were known around price and counterparty.

Meanwhile, Chinese independent refiner Rongsheng was heard to have issued a tender seeking medium sour crudes for the current cycle. Traders said the refiner typically buys medium-sour grades for its feedstock. Other details around the tender had yet to emerge.