Dubai futures: Record low Middle East crude prices fail to stimulate demand

Demand for Middle East sour crude oil grades were subdued Monday morning in Asia, despite prices of several key grades touching record lows the week before, traders in the spot market said.

Market activity was "pretty subdued," according to a buyer for a North Asian refinery, who added that buyers were "just being patient with the situation."

Record low prices for spot differentials and underlying crude benchmarks did little to encourage buying activity, as the demand outlook worsens amid growing lockdowns and decline of economic activity in various countries partly due to air travel and general civilian movement restrictions, traders said.

Spot price differentials and key spreads in the Middle East sour crude market touched record lows Friday, including the May Dubai cash/futures spread, a key gauge of spot market sentiment of sour crude in Asia.

The spread was assessed at minus $5.18/b on Friday, down 61 cents/b on the day, and its lowest ever, according to S&P Global Platts records. The previous low was on October 10, 2008 at minus $4.13/b.

Monday morning saw further declines in the underlying Middle East crude benchmark, with the May Dubai futures contract pegged at $29.77/b or 12% lower at 11 am in Singapore (0300 GMT), compared to its $33.88/b assessment level on Friday at the 4:30 pm close in Asia (0830 GMT).

Intermonth spreads weakened as well, with the prompt April/May Dubai crude futures spread pegged at minus $1.94/b Monday morning. The spread had been assessed at minus $1.80/b Friday.

Similarly, the May/June spread was pegged lower at minus $1.89/b Monday morning, down from its assessed minus $1.69/b Friday.

OIL DEMAND TO SHRINK FURTHER

Global oil demand could collapse by over 3 million b/d this year due to growing social and economic lockdown measures aimed at slowing the spread of the coronavirus pandemic, according to Platts Analytics.

World oil demand could fall by over 12 million b/d on the year in April and May and result in annualized fall of as much as 3.2 million b/d in 2020, the head of Platts Analytics Chris Midgley said.

The estimate for the potential demand impact from the coronavirus is one of the most bearish by forecasters to date. It also marks a major revision to Platts Analytics' March 11 estimate of a 960,000 b/d contraction in oil demand this year due to the coronavirus.

Since then, moves by countries to further shut schools and other public venues while imposing tougher travel restrictions have escalated sharply.

US gasoline demand alone could fall by 2 million b/d in the second quarter, in an "extreme scenario" where the pandemic temporarily shutters 34% of workplaces and 50% of non-essential travel miles, according to London-based consultants Thunder Said Energy.

DECLINING MARGINS

Product margins for jet fuel and gasoline declined further with more governments implementing stricter controls across the world, Platts data showed. The declines in product margins come despite heavy corrections in the prices of underlying crude benchmarks, such as Dubai futures, which has lost more than 30% in value since the beginning of the month, when it was assessed at $33.88/b.

The Singapore jet fuel crack to Dubai averaged $2.41/b for the week of March 16-20, which is down from an average of $9.10/b over February. The spread was assessed at $2.27/b on Friday.

For the same week, the Singapore 92 RON gasoline spread to Dubai futures averaged minus $4.24/b, down from February's crack value of $7.47/b, Platts records showed. The gasoline spread to Dubai was assessed at minus $4.98/b on Friday.

The spread for Singapore naphtha against May Dubai futures was assessed at minus $8.08/b Friday, and averaged minus $7.23/b over March 16-20, down from an average of minus $4.87/b in February.