Crude MOC: Strong selling interest drives cash Dubai spread to record low

A high degree of selling interest was seen in the Middle East sour crude market Thursday, driving benchmark cash Dubai's discount to futures to a record low alongside spot market differentials for key grades, which reverted to last month's discounts despite significant price cuts offered by producers.

The Dubai cash/futures spread for May – a key proxy of sentiment in the sour crude spot market – was assessed at minus $4.57/b Thursday at the end of the Platts Market on Close assessment process.

This is the lowest mark for the spread on record, Platts data shows. The spread's previous lowest point was on October 10, 2008, when the spread touched minus $4.13/b.

Other differentials and outright prices of Middle East crude fell as well, taking cues from an unending global correction in oil prices amid a worsening demand outlook triggered by the coronavirus pandemic.

Spot price differentials for light sour crude grades plunged past minus 70 cents/b discounts to their respective OSPs, according to bids heard in the wider market and offers seen in the MOC.

France's Total offered a cargo each of Murban and Das Blend crudes, with the offers standing at minus 69 cents/b under the OSP at the end of the MOC Thursday.

Meanwhile, buyers were placing bids at around minus 75 cents/b under the OSP for the same grades in the spot market, said traders.

No trades were seen in Thursday's MOC for the two cargoes.

Playing catch-up

Prices in the Middle East sour crude market are playing catch-up to plummeting oil rates globally, with key benchmarks down 50% since the start of the month, market participants in Asia pointed out.

ICE Brent futures have shed 52% in value since the start of the month, going from $51.90/b on March 3 to $24.88/b at the settle Wednesday.

May Dubai futures have also fallen sharply, but the contract's 40% loss from $50.69/b to $30.41/b is lagging behind Brent, added traders.

The lag is largely attributable to heavy price cuts from Middle East producers earlier this month, which provided a temporary support under Dubai prices by keeping Middle East crude barrels competitive in an oversupplied oil market, said market participants.

Dubai is one of the underlying references for Middle East crude prices in Asia.

Broken spreads

Brent's fall, which outpaced Dubai, also caused a key spread between the two markers to flip midway this month, a rare occurrence indicative of wider market chaos, according to industry veterans.

The Brent/Dubai EFS was assessed at minus $3.54/b Thursday at the 0830 GMT close in Asia, its lowest on record.

"Everything is broken at the moment, and we have no choice [but to offer prices lower]. Nobody is buying," a seller based in Asia told Platts Thursday.

Global oil demand will contract by 2.8 million b/d, or 2.8%, this year as worldwide measures to slow the spread of coronavirus pandemic continue to escalate, Norway-based consultant Rystad Energy said Wednesday.

With new travel restrictions and quarantine lockdowns being announced around the world on a daily basis, global oil demand is expected to average 97.1 million b/d in 2020, down from 99.9 million b/d in 2019, Rystad said.

The estimate is a massive jump from its last forecast of a 600,000 b/d fall in 2020 oil demand a week ago. Rystad said it expected the biggest demand hit to come in April, with demand for oil falling by as much as 11 million b/d year on year.