Dubai futures rise as product margins show signs of slow recovery

Singapore — Benchmark Dubai crude futures ticked up at the start of the trading week in Asia on Monday, with market sentiment turning cautiously optimistic as product margins start to show some signs of recovery, market participants said Monday morning.

At 11 am in Singapore, the June Dubai futures contract was pegged at $32.12/b, up 2.4% from its assessment of $31.38/b at Friday's close in Asia.

Inter-month spreads also eased a notch, with the May/June Dubai futures spread pegged at minus $3.30/b at 11 am Monday. This is up 13 cents/b from the minus $3.43/b assessed on Friday at 4:30 pm in Singapore (0830 GMT).

The June/July spread also strengthened, being pegged at minus $1.62/b Monday morning, compared with its assessed level of minus $1.81/b on Friday.

With spot trading of June loading cargoes expected to pick up pace this week, market participants mulled over product margins showing signs of a turnaround after slumping to multi-year lows in recent weeks.

The spread between June FOB Singapore naphtha swap and June Dubai futures averaged minus $10.68/b over the week of April 13-17, S&P Global Platts data showed. This is up nearly 11.5% from the prior week, when the spread averaged minus $12.05/b, according to Platts calculations.

Similarly, the spread for the 92 RON gasoline swap against Dubai paper climbed nearly 18% week on week to average minus $5.08/b over April 13-17, the data showed.

Products such as naphtha and jet fuel received a boost as buying activity picked up given the availability of cheap cargoes in the market, traders said.

However, margins are still not completely out of the red, with refinery run rates likely to stay diminished for the coming months, they noted.

Last week, initial spot tenders and one-off market deals saw June loading cargoes of Middle East crude grades such as Murban, Al-Shaheen and Qatar Marine fetch deep discounts relative to their underlying markers.

Deeply discounted crude values fed into refineries could boost demand for Middle East grades, traders said. Cheaper prices in the spot market for these barrels would further ease the cost of production for buyers in Asia, which have been forced to cut runs as product margins slid at a faster rate than prices of underlying crude barrels.

A June loading cargo of Murban crude was sold in the spot market last week at a discount of $2/b against the June official selling price. Light sour crudes such as Murban are in plentiful supply in Asia, traders said, with the discounted cargo reflecting this.

The discount of $2/b has eased, however, from the previous cycle when Murban values dropped to as low as minus $3/b under OSP toward the end of the cycle.

Cuts to May official selling prices for Abu Dhabi grades such as Murban have contributed to easing discounts, traders said.

Abu Dhabi National Oil Company slashed its May OSP for Murban to minus $6.95/b last week, a cut that was seen as "fair" by the wider market in Asia.