Middle East crude price cuts crunch Brent-Dubai spread to near parity

Singapore — Benchmark Dubai crude futures' discount to ICE Brent shrank to its slimmest on record in mid-morning trade in Asia Wednesday, with crude from the Middle East poised to see preferential demand from refiners in Asia due to competitive pricing.

The May Brent/Dubai Exchange Futures for Swaps spread was pegged at 8 cents/b at 11 am in Singapore Wednesday (0300 GMT), a new low for the spread, according to S&P Global Platts records.

The EFS had been assessed at 48 cents/b at the Asian close at 4:30 pm in Singapore (0830 GMT) Tuesday.

Price cuts issued by Middle East producers in step with Saudi Aramco appeared to have given crude from the region a competitive edge in the newly launched price war, traders said, effectively shutting off any arbitrage from the US or Europe to Asia.

"Buyers [in Asia] should load up on as much Saudi [crude] as they can -- and they will," a Singapore-based crude trader said. "Saudi said they will give whatever [volumes] buyers want - so should be easy," he added.

The spread had last touched a record low at 15 cents/b in intraday trading last Friday, when global markets were betting on OPEC+ producers to slash crude output by an additional 1.5 million b/d to bolster falling oil prices.

But a refusal by Russia to back additional production cuts saw a further collapse of oil prices, as well as a price war triggered by Saudi Aramco, which slashed its official selling prices to customers globally by record amounts earlier this week.

Other Middle East crude producers appeared to fall in line with Aramco, with Iraq's SOMO, UAE's ADNOC and Kuwait Petroleum subsequently slashing prices to Asian customers.

"For refiners, Saudi is now the reference," against which they will compare every other grade available via term contracts or in the spot market, a second crude trader said.

Producers that have yet to issue OSPs, such as Iran and Qatar Petroleum, are largely expected to follow suit with heavy price cuts.

Meanwhile, intermonth spreads for Dubai futures hovered in a well-worn range Wednesday morning, with the contango implying an oversupplied crude market, traders said.

The April/May Dubai futures spread was pegged at minus 78 cents/b at 0300 GMT, little changed from minus 77 cents/b assessed at Tuesday's close.

Similarly, the May/June intermonth spread was pegged at minus 73 cents/b at 0300 GMT, after being assessed at minus 74 cents/b at 0830 GMT Tuesday.

With no deal in place for the further output cuts sought by Saudi Arabia, current production quotas are set to expire at the end of March. In addition to slashing official selling prices, the kingdom announced it would boost its supplies to the market in April to a record 12.3 million b/d.

In the meantime, Russia could potentially increase its oil production by 200,000-300,000 b/d in the short term and up to 500,000 b/d in the long term, its energy minister Alexander Novak said. In February, the country produced 11.38 million b/d of crude and condensate, according to Platts estimates.