CRUDE MOC: Muted demand limits upside for Middle East crude spreads

Singapore — Benchmark cash Dubai and Oman's discounts to June Dubai futures ticked up at the end of the Platts Market on Close assessment process Monday, but the upside was capped as buying interest for the wider Middle East crude market remained weak in Asia.

The June Dubai cash/futures spread was assessed at minus $10.14/b Monday, breaking a six-day long downward streak. Overall however, the spread, typically tracked as a gage of spot market sentiment of Middle East crude in Asia, has fallen sharply from last month. It averaged minus $9.70/b to date in April, which is down from an average of minus $3.11/b in March, Platts data showed.

Similar spreads for other Middle East sour crude grades, such as Murban, Al-Shaheen and Oman, also trod a familiar range in deep negatives Monday.

A smattering of June loading cargoes that have traded in the spot market so far this month cemented deep discounts for Middle East crude as supply outstrips demand, even after taking into account significant production cuts from OPEC+. The 23-member alliance will cull 9.7 million b/d of combined oil production over May and June. Demand however, is set to slide by 29 million b/d year on year in April, according to the latest reports, with figures for the following months expected to take a similar hit.

Weak demand for Middle Eastern sour crudes in Asia manifested itself late last week, when the Petroleum Association of Japan said it may ask term crude suppliers to delay some cargoes loading in June amid plummeting demand for oil products due to the coronavirus pandemic.

Japan's crude oil imports total about 3 million b/d with roughly 90% from the Middle East, of which 70%-80% of the supplies are based on term contracts.

In the Platts Middle East sour crude MOC a total of 11 partials traded on Monday, seven of which were Dubai and four Oman. This brings the total count for April to 94 partials, with 66 of these being Dubai and 28 Oman for the month-to-date.

Each partial is 25,000 barrels in size. A convergence occurs when 20 partials are traded between two counterparties, resulting in a full 500,000 barrel physical cargo being declared from the seller to the buyer.

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.

For Oman partials, the seller has the option to deliver Oman, or, with a quality premium, a Murban cargo to the buyer.