Middle East crudes retreat as market braces for producer price hikes

Singapore — Benchmark Dubai crude futures retreated in mid-morning trade in Asia June 9 as the Middle East sour crude market braces for an onslaught of aggressive price hikes from producers, taking cues from Saudi Aramco's recent official selling prices, traders said.

At 11 am in Singapore on June 9 (0300 GMT), outright prices for the Dubai and Brent futures contracts retreated around 4%-5% from the June 8 Asian close. Intermonth spreads for Dubai crude futures also fell, indicating a softening of market structure for Middle East crudes in Asia.

The August Dubai benchmark futures contract fell 4% from 0830 GMT on June 8 to be pegged at $40.56/b at 0300 GMT on June 8, S%P Global Platts data showed.

August ICE Brent futures fell 4.5% over the same period to be pegged at $40.95/b at 0300 GMT on June 9, causing the Brent/Dubai Exchange Futures for Swaps spread to narrow to 39 cents/b in the morning of June 9 from 64 cents/b at the close on June 8.

Middle East crude buyers in Asia have revised expectations as OSPs emerging this week showed producers adopting a more aggressive range for price hikes than had been initially expected.

The UAE's ADNOC on June 8 issued its July OSPs that emulated and even exceeded Aramco's hikes earlier in the week. Traders said they expect other producers will do the same.

"OSP setting all [seem to be] following Saudi," a trader said. "So we know SOMO, KPC, QP OSPs [will be higher] as well," he added, pointing to Abu Dhabi's issuance overnight.

ADNOC said its July OSP for Murban will be a premium of $1/b to Platts Dubai crude assessments, an increase of $5.45/b on June. Upper Zakum, which was at a premium of 50 cents/b to Murban in June, was moved to parity with the grade in July. For May and June, ADNOC had set Murban at a discount to medium and sour Upper Zakum. Das Blend was kept at a 35 cent/b discount to Murban and Umm Lulu was held at parity to Murban in July.

Market structure for Middle East crude in Asia softened in expectation of further hikes to follow, with the July/August Dubai crude futures spread falling 6 cents/b overnight to be pegged at 4 cents/b at 0300 GMT June 9. The August/September spread retreated by 13 cents/b over the same period to be pegged at minus 18 cents/b.