Rising Middle East sour crude spreads reflect firm July trade sentiment

Singapore — The Dubai crude futures complex continued to firm during Asian trading hours Thursday morning, with sentiment for Middle East sour crude looking optimistic as July trading cargoes change hands at premiums to their respective official selling prices in the spot market.

At 10 am in Singapore (0200 GMT) Thursday, the July Dubai futures contract was pegged at $30.49/b, inching up from $30.47/b assessed on Wednesday at 4:30 pm (0830 GMT).

Intermonth spreads were noticeably firmer Thursday morning, with the June/July Dubai futures spread pegged at minus 34 cents/b at 10 am, up from minus 48 cents/b assessed on Wednesday. On a similar note, the July/August spread ticked up to be pegged at minus 47 cents/b Thursday, from its assessment of minus 51 cents/b on Wednesday.

The swaps market structure for Middle East sour crude has been strengthening through the week, stepping closer to parity as OPEC+ efforts to clear excess supply from the market have narrowed the contango structure considerably since the start of the month.

A contango, or negative intermonth spreads, indicate a market environment where prompt crude oil supplies exceed demand.

The prompt June/July Dubai futures spread has risen from a contango of minus 80 cents/b at the start of the week, to minus 34 cents/b Thursday morning.

Similarly, the M2/M3, or July/August, spread was assessed at minus 74 cents/b at the start of the week on May 11, but was trading around minus 47 cents/b Thursday morning.

The uplift in intermonth spreads is reflective of firming trade sentiment for July cargoes in the spot Middle East sour crudes market this month.

With Middle East producers announcing incremental production cuts and lower term volumes over May and June, traders said there was budding optimism that the Asian market will be balanced in July.

Most recently, a July-loading cargo of Qatar's Marine crude was reportedly picked up by a Chinese buyer at a premium of 50 cents/b to the July OSP. The premium comes despite producers' recent hikes, including Qatar, to their June OSPs, implying firm demand for such grades from certain pockets of Asia.

Additionally, a July-loading cargo of Abu Dhabi's Upper Zakum grade had also traded in the spot market earlier this week at a premium of around 30 cents/b to its OSP.

"Upper Zakum should trade well [in premiums] despite the OSP being above window [Platts Market on Close assessment process] value," a crude trader said, noting that the latest ADNOC OSP for Upper Zakum of minus $3.95/b is higher than the Dubai M1/M3 average to-date this month of minus $4.59/b.

Upper Zakum is one of the five deliverable grades in the Platts Dubai partials basket, and close in quality to physical Dubai crude.