DUBAI FUTURES: Sep/Oct contango narrows after uptick in physical market

Singapore — The September/October contango structure for benchmark Dubai crude oil futures narrowed mid-morning in Asia on Aug. 24, led by a recent uptick in cash differentials in the physical market.

At 11 am Singapore time (0300 GMT) on Aug. 24, the September/October Dubai crude futures spread was pegged at a contango of 42 cents/b, narrowing 4 cents/b from the Asian close on Aug. 21, S&P Global Platts data showed. The October/November spread was pegged at a contango of 29 cents/b, also narrowing 4 cents/b over the same period.

This comes as cash differentials rebounded in the spot market, with October cash Dubai assessed at a discount of 71 cents/b to same-month futures on Aug. 21, higher by 10 cents/b day on day, Platts data showed.

There has been a slight uptick in spot buying interest in the Middle East crude market, particularly for the lighter sour crude grades. Emerging demand from Japan, India and Thailand for light sour barrels has lifted cash differentials for these grades against their respective official selling prices.

Spot trading is, however, expected to wind down in the week of Aug. 24, as most buyers have wrapped up purchases of October-loading cargoes.

Market participants will also be evaluating their expectations for the next round of OSPs.

Meanwhile, the front-month Brent/Dubai Exchange of Futures for Swaps spread was pegged at plus 10 cents/b mid-morning on Aug 24, rangebound from 9 cents/b assessed at the Asia close on Aug. 21. The spread was much narrower compared to earlier last week, when the October EFS was assessed at plus 44 cents/b on Aug. 17, Platts data showed.

Outright Brent crude prices have seen more downward pressure lately amid weak European economic recovery news, plus concerns over the resurgence of COVID-10 infections.