DUBAI FUTURES: Backwardation stays steady; eyes on QP, SOMO OSPs

Singapore — Backwardation in the benchmark Dubai crude futures intermonth spreads remained steady in Asia trading Dec. 10 as optimism in the Middle East crude market continued on expectations of a healthy trading cycle for February 2021-loading barrels.

At midmorning Singapore time (0300 GMT) Dec. 10, the January/February spread was pegged at 18 cents/b, unchanged from the Asian close on Dec. 9, S&P Global Platts data showed.

The M1/M3 spread, a key indicator of sentiment in the Middle East sour crude market, had softened at the start of the week as trade activity was yet to kick off but gained strength later, boosted by fervent Asian purchases.

While Indian buying activity has lived up to market expectations through issuance of several crude oil tenders for February-March 2021 delivery, the market hoped China will sustain the momentum in equal measures.

"I hear the teapots [independent Chinese refineries] have started buying crude for February delivery. Some West African cargoes and Urals cargoes have been purchased from trading houses," said a trader with a north Asian refiner, adding that purchases of Middle East crudes should follow soon.

Elsewhere, China's Norinco Huajin refinery plans to take up to 16 million barrels of Basrah crude from Iraq in 2021 via term contracts signed by Zhenhua, the trading arm of Norinco, the parent company of Huajin, a source with direct knowledge of the matter told Platts on Dec. 9.

The refiner's 2021 Iraqi crude import volume will be largely flat from the existing term contract with Iraq's State Oil Marketing Organization, according to the source based in Liaoning province.

This follows talks that Zhenhua could be the front runner in the long-term tender issued by SOMO to buy crude for five years.

As markets react to issuance of official selling prices by Saudi Aramco and Abu Dhabi National Oil Co, the wait is on for the other producers -- Qatar Petroleum, SOMO and NIOC -- to issue their respective OSPs.

"Quite a high raise in ADNOC prices really. Think QP and SOMO will follow Saudi prices than ADNOC. That would make more sense in this market," said the same trader.

With the onset of the festive season, the markets awaited trading to commence amid expectations of bullish sentiment sustaining the strong fundamentals built up so far in December.