Brent/Dubai crude futures spread narrows to 11-month low with OPEC+ supply cut extension in sight

Singapore — Benchmark Dubai crude futures' discount to ICE Brent narrowed to an 11-month low in mid-morning trade in Asia Thursday amid talk of OPEC+ extending its current production cut agreement, taking 1.7 million b/d of crude oil off the market beyond the March expiry of the current deal.

May Brent/Dubai Exchange Futures for Swaps, a key spread tracking the spread of Middle East sour crude relative to grades priced off Brent, narrowed in mid-morning Asian trade to be pegged at 38 cents/b at 11 am Singapore time (0300 GMT).

The spread was last assessed at 60 cents/b at the close of Asian markets at 4:30 pm in Singapore (0830 GMT) Wednesday.

The Thursday morning peg brought the EFS to an 11-month low; it was last seen at this level on March 13, 2019, according to S&P Global Platts data.

A narrower EFS spread implies relative strength in the Middle East crude complex compared to Brent-linked grades.

OPEC and its oil producer allies may consider extending their existing production deal for another year on top of additional output curbs to offset the impact of COVID-19 on global demand, Equatorial Guinea's energy minister Gabriel Obiang Lima said late Wednesday.

APRIL OVERHANG

With an extension of the supply cut deal in sight, market participants in Asia shrugged off bearish indicators Thursday morning, including talk of April-loading barrels for Middle East crude still available in the market from last month's cycle.

"Seems April-loading Middle East barrels are not cleared yet," said one refinery-linked source based in Singapore, who had been offered April-loading cargoes from sellers in the market.

Details around the volume of overhang and grades available were still emerging.

Meanwhile, Dubai intermonth spreads firmed Thursday, with optimism surrounding a likely supply cut extension agreement from Vienna.

The April/May Dubai futures spread was pegged at 4 cents/b Thursday at 11 am, rising from a contango of minus 1 cent/b assessed at Wednesday's close.

The existing OPEC+ deal expires end March, meaning any new output cut would take effect from April.

The intermonth spread for May/June Dubai crude futures also rose to be pegged at 5 cents/b Thursday morning. It had been assessed at 2 cents/b Wednesday.

OPEC+ CUT EXTENSION LIKELY

OPEC, Russia and nine other countries are in the fourth year of output cuts aimed at supporting prices, with the current deal calling on the 24 countries to cut 1.7 million b/d through the end of March.

"The initial plan was that 2020 was supposed to be the year we can relax but coronavirus changed everything so there is no question of ending early," Obiang Lima told reporters ahead of a key OPEC meeting in Vienna this week.

Saudi Arabia has been urging the OPEC+ alliance to extend the deal and tighten quotas by another 1 million b/d or more. The official OPEC+ recommendation is for 600,000 b/d in new cuts to help rebalance the oil market, but Saudi Arabia has pledged to overcomply by another 400,000 b/d, according to sources.

"I think we should do something that definitely supports us all. Clearly, the million [b/d Saudi proposal] is very important. I think it will send a very clear message and we just need to meet to confirm that," Obiang Lima said.