Contango for Dubai crude futures narrows amid lower oil inventory expectations

Singapore — The contango for benchmark Dubai crude futures narrowed in mid-morning Sept. 28, as global oil inventories are expected to drop below the five-year average in Q2 2021.

OPEC Secretary General Mohammed Barkindo said Sept. 27 that OECD commercial oil inventories are expected to stand slightly above the five-year average through Q1 2021, before dropping below that benchmark for the remainder of 2021, S&P Global Platts had reported.

The projections are based on latest forecasts, which expect world oil demand in 2020 to contract by 9.5 million b/d, while non-OPEC liquids production is anticipated to decline by 2.7 million b/d, Barkindo said in prepared remarks at the G20 energy ministerial hosted online by Saudi Arabia.

Reflecting prospects of an easing supply glut amid ongoing OPEC+ compliance efforts, the market structure for Dubai has seen a narrower contango lately.

At 11 am Singapore time (0300 GMT), the October/November timespread was pegged at a contango of 13 cents/b, narrowing 4 cent/b from the Sept. 25 Asian close, Platts data showed. The November/December timespread was pegged at a contango of 21 cents/b, steady over the same period, as per the data.

OPEC and its allies, including Russia, have said they are aiming to reduce global oil inventories to the five-year average through their collective production cuts.

Nonetheless, trade sources said that demand from Asian refiners remained sluggish. This could in turn offset bullish sentiment that emerged following the recent OPEC+ monitoring committee meeting, as well as news on ADNOC's 25% cut for November term volumes seen last week.