CRUDE MOC: Prompt June/July spread flips into backwardation after 2-month contango

Singapore — The prompt June/July Dubai crude futures spread flipped into backwardation Thursday in Asia for the first time in more than two months, mirroring a similar move in spot market differentials for Middle East crude cargoes.

Additionally, several bids and offers for full crude cargoes placed in the S&P Global Platts Market on Close assessment process for Middle East crude drove the same point home; market sentiment has made a speedy U-turn into bullish territory.

At the 0830 GMT Asian close of trading, the prompt June/July intermonth spread for Dubai crude futures was assessed at plus 14 cents/b, up from minus 48 cents/b a day ago.

The flip is one of the first leading indicators of an underlying shift in market momentum, following on the heels of Middle East crude producers hiking their official selling prices earlier this week, said traders.

The move would "draw out all the storage," said one end-user, adding that "when market becomes backwardated, sellers will have incentive to bring out cargoes from storage."

The prompt Dubai futures spread was last in backwardation on March 5, at 3 cents/b, Platts records showed, but from then until now has traded in the negative zone, falling as low as minus $4.09/b at one point, on April 21.

SPOT MARKET MOVES TO PREMIUMS

Earlier in the day, traders had told Platts that bids for Middle East sour crude cargoes of Murban had moved up to 50 cents/b premiums in the spot market, while medium sour crude was trading in premiums ranging from 30 cents/b to 50 cents/b over their respective OSPs.

Bids placed later in the day in the Platts crude cargo MOC drove the point home, moving up sharply from initial parity (zero) levels to 75 cents/b premiums by the end of the MOC at 4:30 pm in Singapore.

Both bids Thursday were placed by Japanese trader Mitsui, which was seeking July-loading cargoes of Murban and Das Blend grades. The bids did not trade.

Meanwhile, Exxon also placed an offer for medium sour Upper Zakum crude in Thursday's MOC, with its final offer price standing at OSP plus $1.40/b. The offer is nearly a dollar higher than Total's bid for a similar Upper Zakum cargo placed in Wednesday's MOC. Total's final bid stood at OSP plus 45 cents/b. The difference between Wednesday's bid and Thursday's offer for Upper Zakum reflects how quickly market sentiment has risen day on day, said traders.

The latest buying sentiment is a drastic upswing from last month, when competitive pricing from Middle East producers saw market rates dive into deep discounts, going as low as $2/b to $3/b under OSPs for some grades.