DUBAI FUTURES: Product recovery hopes lift up Middle East crude complex

Singapore — Benchmark Dubai crude futures and intermonth spreads were higher in mid-morning trading hours in Asia on June 2, with Middle East crude traders hopeful of a recovery in product margins and crude prices over the August trading cycle.

"Demand [for Middle East sour crude] is recovering gradually," said a Singapore-based crude trader.

At 11 am in Singapore on June 2, the prompt July/August Dubai crude futures spread rose 8 cents/b from its close at 4:30 pm in Singapore on June 1, and was pegged at minus 1 cent/b.

Flat prices were also higher overnight, with the August Dubai crude futures contract pegged at $38.05/b at 11 am, up from $37.57/b at the June 1 Asian close.

Product margins remain vulnerable to the downside, but certain products such as naphtha have started to show an upward trend, traders pointed out.

A naphtha-led recovery in products could restore premiums for lighter crude grades such as Murban, which had flipped into discounts against medium and heavy sour crudes in recent trading cycles.

Murban's upward climb would "depend on product values and refinery runs," said another crude trader. With refineries ramping up run rates as demand for products edges up, prices for light crude grades could receive a boost, he added.

The Platts Singapore FOB Naphtha swap spread against second-month Dubai crude futures averaged a discount of $4.2/b for the week ended May 30, S&P Global Platts data showed, up from minus $4.85/b in the week ended May 23.

The recovery of light crude premiums was also evident in the Brent/Dubai Exchange Futures for Swaps spread, which recently flipped back into its usual state of premiums after having spent a good portion of the year in discounts.

As of 11 am in Singapore on June 2, the EFS was maintaining in premium territory, being pegged at 42 cents/b, compared with 17 cents/b assessed at 4:30 pm (0830 GMT) on June 1.

Brent's premium to Dubai crude futures may also have been spurred by a relatively shorter loading program in Europe, with a marginal drop in North Sea crude supply helping rebalance crude markets in the region, said traders.

Loadings of the five North Sea grades that make up the Dated Brent basket are set to fall marginally in July, according to loading program data compiled by Platts.

Average loadings are expected to be 9,032 b/d lower than June at 870,968 b/d.

Meanwhile, in Asia, Middle East crude trading for August cargoes is set to kick off once official selling prices from producers start to emerge, traders said.

Prices are expected to be issued later this week, and could be subject to any unexpected decisions emerging from an OPEC+ meeting likely to be held on June 4, they added.

The OPEC+ meeting may be moved up to June 4, from the scheduled June 9-10, so July nominations can factor in any changes to oil production quotas, Platts reported earlier citing sources familiar with the discussions.