April Dubai futures differential plunges ahead of June crude trading in Asia

Singapore — Benchmark Dubai crude futures' premium over June cash Dubai plunged sharply in the first few days of April, falling more than $5/b from the March average even before spot market trading kicks off for June loading Middle East crude cargoes.

The June Dubai cash/futures spread -- typically used as a proxy for spot market sentiment for Middle East crudes in Asia -- averaged minus $8.76/b between April 1 and 7, S&P Global Platts data showed. This is already $5.65/b below the whole month average for March of minus $3.11/b, the data showed.

The spread's steep decline points to a heavily bearish month ahead for demand for Middle East sour crude grades in Asia, and has occurred before a single June loading cargo has traded, market participants noted.

"The market has priced in a big cut already, and spreads will collapse again as well" if the cuts do not come through, a trader based in Singapore said.

Asia's oil demand is expected to contract by 3 million b/d in the first half of 2020 before rebounding to grow by 1 million b/d in the second half of the year, according to Platts Analytics.

Refinery runs in Asia fell by 2.7 million b/d in the first quarter and are expected to fall further in Q2 as storage space runs out, Platts Analytics reports released this week showed.

A negative Brent/Dubai Exchange Futures for Swaps spread makes Dubai-linked Middle East crudes relatively more expensive for buyers, market participants noted.

The June Brent/Dubai EFS was pegged at minus $2.53/b at 11 am Singapore time (0300 GMT) Wednesday, falling from minus $1.19/b assessed at the Asian close Tuesday.

Increased crude output by producers in the Persian Gulf is expected to swell the burgeoning surplus of unsold crude cargoes in Asia, traders said. With refinery margins for products such as naphtha, gasoline and jet fuel dropping further in April from March, values for Middle East crude oil in Asia are likely to be discounted heavily for the June trading cycle, they said.

The plunging Dubai cash/futures spread is one such forebear of the discounts Middle East crude cargoes are expected to fetch in the Asian crude market this month.

Meanwhile, intermonth spreads for benchmark Dubai futures continued to dip in mid-morning trading hours in Asia Wednesday as optimism faded over the upcoming OPEC+ meeting to be held via webinar on Thursday.

The May/June Dubai futures spread was pegged at minus $1.75/b at 11 am Singapore time, down from the assessment at minus $1.49/b at the Asian market close Tuesday.

The June/July spread also fell to minus $1.15/b Wednesday morning from minus 97 cents/b assessed Tuesday.