Dubai futures outpace Brent climb in Asia trade, but spreads push lower

Benchmark Dubai crude futures rose more than 5% in mid-morning trade in Asia Tuesday, outpacing an uptick in the outright price of ICE Brent futures overnight. However, intermonth spreads for Dubai futures pushed to new lows Tuesday morning, underscoring weak demand for Middle East sour crude in the region.

At 11 am in Singapore (0300 GMT), the May Dubai futures contract was pegged at $30.18/b, up 5.3% from the assessment at $28.65/b at the Asian close at 4:30 pm Singapore time (0830 GMT) Monday.

However, intermonth spreads for the Dubai futures curve pushed lower Tuesday morning amid the weak demand and excess supply of Middle East sour crude barrels in the region. The April/May spread edged down to be pegged at minus $3/b at 0300 GMT Tuesday after being assessed at minus $2.93/b at 0830 GMT Monday.

Further down the curve, the May/June timespread was a notch lower at minus $2.48/b Tuesday morning, after being assessed at minus $2.47/b Monday.

Market participants said they expect lower crude volumes to be nominated by refiners for May loading, allocations for which will be announced next month.

At the same time, spot trading for June-loading cargoes in April was expected to remain muted, with price differentials in the negatives and another round of cuts expected for official selling prices from Middle East producers.

In addition to fewer nominations for term barrels, refiners are also expected to shed excess inventory amid a move to cut run rates, traders said.

India's Hindustan Petroleum invoked force majeure on its Iraqi crude supplies after domestic demand slumped amid a 21-day nationwide lockdown to combat the coronavirus pandemic, market sources said Monday, mirroring declarations by other Indian refiners on supplies from the Middle East.

HPCL was scheduled to receive two 1 million-barrel cargoes in the first half of April, but the deal has been canceled, the sources said.

The Dubai cash/futures spread for May has averaged minus $2.97/b in March to date, a sharp drop from the minus 2 cents/b averaged in February.

The spread, a leading indicator of how producers may set official selling prices each cycle, implies that prices for grades such as Arab Light may be cut by $2-$3/b for May loading cargoes, traders said.

Earlier this month Saudi Aramco slashed pricing for its crude exports for April, including the biggest cut on record for Arab Light crude for Asia, after OPEC and key ally Russia failed to agree to a production cut. The move instigated a price war in the region, with producers such as Iraq, Qatar, Kuwait and UAE following suit with deep price cuts of their own.

The record price cuts have been unsuccessful in lifting spiraling demand in the region however, with product margins for refiners continuing to push record lows as industrial activity and consumer demand for transport fuels plunges amid efforts to contain the global spread of the coronavirus.