Swelling Middle East supply limits upside for Dubai futures

Singapore — Benchmark Dubai crude futures were largely steady in mid-morning trading hours in Asia on Friday, with market participants nervously eying a mounting number of unsold April and May loading cargoes available in the spot market.

"People are either storing or offering [April and May cargoes]," said a Singapore based refiner.

May Dubai futures was pegged at $31.07/b at 11 am in Singapore (0300 GMT), up a few cents from $31.03/b assessed at the 0830 GMT Asian close Thursday.

The May Brent/Dubai Exchange Futures for spread shrank however, as ICE Brent futures ticked up a few notches more than the May Dubai contract by Friday morning, after settling lower on Thursday.

The May EFS was pegged at minus $4.50/b Friday morning, narrowing from minus $4.74/b assessed Thursday evening in Asia.

At 11 am in Singapore, the May ICE Brent futures contract was up at $26.57/b, from $26.29/b as of 4:30 pm in Singapore on Thursday.

APRIL AND MAY OVERHANG

Meanwhile, trading activity in the Middle East sour crude market had heavily receded toward the end of the week, said market participants in Asia, attributing the decline in large part to demand-side fundamentals.

Plunging refining margins and lower revisions to oil demand declines in the coming months have left refineries with little choice but to reduce runs and pare down crude procurement for the coming months, they said.

Price drops for crude to multiyear lows have done little to stem the tide, added traders.

"Prices for sour crude grades are quite low, lower than their valuations, but the problem is there is no demand," said the refiner.

As a result, the spot market in Asia was being inundated with excess volumes of Middle East crude cargoes. The situation would likely be exacerbated once Saudi Arabia and other OPEC producers ramp up production starting next month, they added.

"Saudi keeps increasing production, so we will land in a situation where everyone will have to float or store [their crude]," he added.

PRODUCTION RAMP UP

Saudi Arabia is currently embroiled in a protracted oil price battle, with its energy ministry instructing Aramco to supply the market with 12.3 million b/d of crude "over the coming months."

That is some 25% above its current supply, and will be a record high for the kingdom.

Incoming data from China showed the kingdom's efforts to win market share in Asia may have borne some fruit over the past year despite setting on a path of heavy price cuts since March 2020.

China's crude oil imports from Saudi Arabia surged 25.8% on the year to 14.74 million mt or 1.8 million b/d in January-February, taking the supplier's market share to 17.1%, data from General Administration of Customs showed Wednesday.

This was the highest market share for a single supplier since May 2015 when the kingdom grabbed 18%, GAC data showed.