Contango in Dubai crude futures widens despite Saudi OSP cuts

Singapore — The contango spreads for benchmark Dubai crude futures were wider in the trading week starting Sep. 7 despite cuts to official selling prices by Saudi Aramco over the weekend.

The October/November spread was pegged at a contango of 23 cents/b at 11 am in Singapore (0300 GMT), widening 7 cents/b from the 4:30 pm (0830 GMT) Asian market close on Sept. 4, S&P Global Platts data showed.

The November/December spread was pegged at a contango of 29 cents/b, widening 6 cents/b over the same period.

Despite the cuts in latest OSPs, industry sources said persisting poor cracking margins were expected to continue to weigh on demand from Asian refiners.

"As widely expected, Saudi Aramco lowered its October official selling prices, but still provides bearishly poor optics... to encourage China to keep the flow of crude moving, amid a worrying signpost that the world's biggest exporter sees fuel demand waffling as global pandemic flare-ups dot the landscape," AxiCorp chief global markets strategist Stephen Innes said in a note Sept. 7.

Refining margins are showing little sign of recovery as a resurgence in COVID-19 cases globally weighs on the demand outlook for oil markets, and the sour crude market is hence expected to remain in contango for the near term.

Saudi Aramco lowered its October official selling prices for crude supplies to Asia in a pricing letter on Sept. 5. The differential to Asia for Arab Light was cut by $1.40/b to a discount of 50 cents/b against Oman/Dubai, while Super Light and Extra Light were reduced by $1.50/b, Arab Medium by $1.20/b and Heavy by 90 cents/b.