Sour crude spreads dip as refiners plan run cuts in Asia

Singapore — Intermonth spreads for benchmark Dubai crude futures declined in mid-morning trading hours in Asia on Wednesday, as refiners across Asia sought to cut run rates on sinking product margins over the next few months.

"Many refineries [could] cut runs dramatically...due to lockdowns," said a Singapore-based crude trader Wednesday.

Refiners, including Taiwan's CPC and Vietnam's Dung Quat, have lowered crude purchases and run rates amid the current low-demand environment, triggered in large part by the spread and subsequent containment efforts for COVID-19.

CPC is a regular buyer of spot market Middle East grades such as Upper Zakum, while Dung Quat imports a chunk of its monthly crude from Kuwait.

The prompt April/May Dubai crude futures spread was pegged at minus $2.28/b Wednesday morning, at 11 am in Singapore (0300 GMT).

The spread, which sank below minus $2/b earlier this week as demand outlook worsened across the East, was assessed at minus $2.18/b at the 0830 GMT Asian close Tuesday.

The impact of markedly lower demand was felt further along the Dubai futures curve as well, with the May/June Dubai futures spread dipping to minus $2.14/b Wednesday morning. It was assessed at minus $2.11/b Tuesday at the close.

The pullback in Dubai futures spreads was seen despite an uptick in global crude oil prices.

May Dubai futures rose 2% overnight from its $31.70/b assessment at Tuesday's close. At 11 am in Singapore Wednesday, it was pegged at $32.37/b.

The rise in Dubai futures traced a recent uptick in oil prices, with hopes of economic stimulus and international dialog lending support to flat prices.

The May ICE Brent futures contract was pegged at $28/b at 11 am Wednesday (0300 GMT), up 1% from the $27.76/b assessed at 4:30 pm in Singapore Tuesday.

MORE PRICE CUTS

Demand for Middle East sour crude grades has been muted this month, resulting in an oversupply of May-loading cargoes in the spot market, market participants told S&P Global Platts.

The Dubai cash/futures spread, a key indicator of sentiment linked to Middle East oil barrels, has averaged minus $2.44/b this month to date, a steep decline from an average of minus 2 cents/b over February, Platts data showed.

The plunge in the Dubai spread, combined with bleak demand and an oversupply of spot market crude volumes may lead to producers slashing prices of term barrels to Asia again next month, said several traders in Asia.

Middle East crude producers cut official selling prices heavily at the start of March, led by Saudi Aramco, which cut the price differentials of its crude by $5/b to $6/b to its Asian customers for April loading cargoes. The price cuts were some of Aramco's lowest ever on record, and initiated a price war amongst major oil producers for market share in Asia and Europe.