CRUDE MOC: Oman/Dubai spread flattens with fading demand for sour crude

Singapore — Benchmark cash Oman's spread to cash Dubai flattened to parity Thursday, with buying interest for Middle East sour crude barrels fading quickly as the end of the cycle approaches by March 31.

May cash Oman's spread to May Dubai futures was assessed at minus $5.33/b on Thursday at the end of the Platts Market on Close assessment process. This was the same as the assessment for the May cash Dubai against May Dubai futures, bringing the spread between cash Oman and cash Dubai to zero on the day.

The cash Oman/Dubai spread had been assessed at 28 cents/b the day before.

Buying interest, which has been especially lackluster this month, receded further as end-users in Asia prepared for run cuts amid dwindling product margins and low economic activity, said traders on Thursday.

"How can there be demand, refineries are cutting runs 30% and producers are ramping up production, I haven't seen the market this weak in a long time," a crude trader said.

A high volume of unsold cargoes of May loading Middle East crude were available on the spot market, said traders.

Additionally, market participants were mindful that with run cuts for refineries, a second wave of crude cargoes may arrive on the market as end-users attempt to discard excess volumes.

Meanwhile, Thursday's MOC saw an absence of full-sized cargo bids and offers, after four cargoes were traded via the process Wednesday.

However, two partials of May Dubai did change hands in Thursday's process, with Hengli buying one from Shell, and BP selling a partial to Total.

This brings March's total partials count to 154, of which 143 are Dubai and 11 are Oman partials.

So far in March, a total four cargoes have been declared, all on convergences of Dubai partials.

At the same time, eight full-sized cargoes of 500,000 barrels each have traded on the MOC this month.

For Dubai partials, the seller has the option to deliver a Dubai, Oman, Upper Zakum, Al-Shaheen or, with a quality premium, Murban cargo to the buyer.

S&P Global Platts recently announced a rise in the minimum threshold for the quality premium that sellers receive for the nomination and delivery of a cargo of Murban crude oil into a physical convergence of Dubai, Al Shaheen, Upper Zakum or Oman partials during the MOC, effective April 1, 2020.

Platts will raise the minimum threshold to 50 cents/b from 25 cents/b for the Murban quality premium, which is set at 60% of the net price difference between Platts front-month cash Murban assessment and Platts front-month cash Oman assessment during the full month prior to announcement, the company said in a subscriber note published March 24.

The higher minimum threshold will mean that a quality premium or QP of $0.00/b will be announced if 60% of the observed price difference between the Platts Murban and Oman assessments during the prior month is less than 50 cents/b, the company said, citing an unprecedented narrowing of the relative value of Murban compared with other grades in the Oman and Dubai baskets as a reason for the move.