Dubai crude futures edge higher amid Middle East production cuts

Singapore — Benchmark Dubai crude futures edged higher in mid-morning trade Wednesday as the Middle East crude market in Asia took cues from evidence of supply cuts that could bring market inequilibrium closer to rebalancing, traders told S&P Global Platts.

At 11 am in Singapore (0300 GMT), the June Dubai futures contract was pegged at $25.32/b, up $1.26/b or 5.2% from the $24.06/b assessment at Tuesday's 0830 GMT Asian close.

Following announcements from Oman and Kuwait, the UAE's Abu Dhabi plans to cut volumes of its flagship Murban and Upper Zakum grades by 20% in June, compared with 15% cuts for May volumes, a source familiar with the matter said.

ADNOC's May cuts for Murban and Upper Zakum have already proved supportive of spot market prices for these grades, which have risen from deep discounts during April to approach small premiums for the latter half of the June trading cycle.

Structure for forward months also rose on optimism of further cuts helping market differentials, with intermonth spreads for Dubai futures edging higher Wednesday. The May/June Dubai futures spread was pegged at minus $2.13/b at 0300 GMT, up 37 cents/b from minus $2.50/b assessed at 0830 GMT Tuesday. The June/July spread edged up 6 cents/b over the same period to be pegged at minus $1.15/b at 0300 GMT Wednesday.

ADNOC will also cut volumes of its Umm Lulu and Das grades by 5% in June, the same level of cuts for May, the source added. The state-owned entity Tuesday informed its customers about the June cuts, the source said.

The UAE, OPEC's third-largest oil producer, has agreed to cut output from about 4.1 million b/d in April to around 2.5 million b/d in May and June. The reductions are part of the action agreed by the broader OPEC+ pact that will see 23 members trim output collectively by 9.7 million b/d during these two months.

Global oil demand is expected to fall by a record 9.3 million b/d year on year in 2020, the International Energy Agency said earlier this month, as containment measures in 187 countries bring mobility to a virtual standstill. The worst of the demand collapse will be seen in April, which could see consumption plunge to 1995 levels.

ADNOC earlier this month announced deep cuts to the official selling prices of its crude oil loading in May and also set the price of Murban crude at a discount to medium, sour Upper Zakum for the first time.

ADNOC's cuts, which were in line with expectations, followed on the heels of Saudi Aramco, which cut the OSPs of its May-loading crude to Asian customers.