Dubai crude futures spreads trade in a range on lack of fresh cues

Singapore — The Middle East sour crude market, led by Dubai crude futures spreads, followed a well-worn range mid-morning in Asia on Wednesday, with market participants searching for direction amid continued rhetoric from OPEC+ and the spread of the coronavirus.

Inter-month Dubai crude futures spreads dipped Wednesday, but were near their assessed values at Tuesday's close.

The market on Wednesday was absent of fresh cues, traders said, while keeping track of the emerging discussions surrounding the upcoming OPEC+ meeting. The 23-country coalition is set to meet March 5-6 in Vienna to decide on the future of their current 1.7 million b/d production cut, with Saudi Arabia having lobbied to deepen the cut to offset the expected demand hit from the spread of COVID-19.

Additionally, the latest updates with regards to the spread of the coronavirus were largely priced in by oil markets overnight, traders said.

Oil futures settled lower Tuesday night as the continued spread of the coronavirus outside China weighed on the demand outlook and sent equity markets sharply lower. There have been 80,238 cases of coronavirus confirmed in 34 countries as of Tuesday morning, according to data from the World Health Organization.

The March/April Dubai futures spread remained firmly in contango, pegged at minus 31 cents/b at 11 am on Wednesday in Singapore (0300 GMT). It had been assessed at minus 28 cents/b at 4:30 pm at Tuesday's close (0830 GMT).

The April/May spread also softened overnight, pegged at 7 cents/b Wednesday morning, down from its assessed 11 cents/b on Tuesday.

With spot market trading of April-loading Middle East crude barrels wrapped up for the month, market activity is likely to remain muted for the remainder of the week, traders said.

Hands on deck will now start to assess how the May cycle will unfold, and whether demand from Asian refiners would continue on a bearish note as it had for the April cycle, they added.

General market consensus pointed to a round of price cuts from producers as they start to issue official selling prices over the first few days of March.

Traders said the contango structure on the Dubai spreads, a narrow Brent/Dubai Exchange of Futures for Swaps spread and thin product margins all contributed to expectations of price cuts.

The April Brent/Dubai EFS was pegged at $1.74/b Wednesday morning, slightly wider compared with the $1.69/b assessment at the close on Tuesday. Still, an EFS in this range is too narrow for arbitrage to become profitable for sellers of European crude into Asia, traders said.