Dubai futures spreads sink to fresh depths as rising freight adds to demand woes

Singapore — The Middle East sour crude complex, led by Dubai crude futures, sank to fresh lows Friday morning, as did Brent/Dubai spreads, with faltering crude demand receiving another blow from rising freight rates on Persian Gulf routes.

Higher freight coupled with fragile demand would increase volumes in an already oversupplied crude market, and put further pressure on a market deeply entrenched in a contango, traders said.

Cuts in official selling prices by Middle East producers were negated in part by a sudden jump in VLCC freight rates after Saudi Arabian shipping company Bahri chartered more than a dozen VLCCs from the spot market earlier this week.

"Freight has almost doubled [this week]," said a refiner based in Southeast Asia, adding that procuring vessels to carry crude from the Persian Gulf was now becoming a challenge.

Rising freight was "eroding into already flailing refinery margins," adding to the demand destruction set in motion by the coronavirus, the impact of which was just starting to take shape in the West, another trader said.

Spreads for intermonth Dubai crude futures and the Brent/Dubai Exchange of Futures for Swaps spread continued on a steep downward path in mid-morning trading in Asia on Friday.

The May Brent/Dubai EFS, which was assessed in negative figures for the first time ever Wednesday, fell to a new low of minus $1.70/b at 11 am in Singapore (0300 GMT). It had been assessed at minus $1.19/b Thursday at the 0830 GMT Asian close.

The negative EFS reflected supply pressure in Europe, where crude from the Middle East is linked to Brent-pricing. An OPEC-led tussle for market share with Russia and other suppliers would see Europe

inundated with crude barrels amid falling demand as countries shutter down to control the rapid spread of the coronavirus, market participants said.

The situation in Asia looked similar, with demand from coronavirus-impacted countries yet to pick up enough to offset supply imbalances in the region, traders said.

Reflecting this, intermonth Dubai spreads flipped into and have remained in contango since February, with hopes of a March recovery fading fast. Friday morning saw the April/May Dubai futures spread

pegged at minus $1.38/b at 11 am in Singapore, falling further from its assessment of minus $1.14/b at Thursday's close.

Similarly, the May/June spread was pegged at minus $1.25/b, falling from minus $1.19/b assessed Thursday.