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Contango emerges in Dubai cash crude structure amid ample supply

Singapore — The spread between October and November cash Dubai assessments dipped into contango Tuesday amid general weakness in the sour crude market in July, S&P Global Platts data showed.

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"Sour complex seems under pressure," a trader said.

The October/November spread was assessed at minus 8 cents/b Tuesday, down from plus 9 cents/b a day earlier and from plus 32 cents/b at the start of the month, Platts data showed.

Contango occurs when the prompt price of a commodity is lower than its forward or future price, indicating relative weakness in the spot market.

The month-on-month Dubai cash spreads are typically indicative of spot market sentiment for Middle East sour crude and are collectively referred to as the Dubai crude structure.

This is only the second time this year the M2/M3 cash Dubai spread has been in contango, after it briefly dropped to minus 3 cents/b on March 16.

However, the extent of the contango seen Tuesday is the lowest the spread has been in almost a year. It previously slid 1 cent further to minus 9 cents/b on August 17, 2017, the data showed.

At that time however, the M1/M2 spread was also firmly in contango. On Tuesday, the September/October cash Dubai spread was assessed at a 50-cent/b backwardation.

As July comes to a close, market focus and liquidity are increasingly starting to shift from prompt September cash cargoes to October loading barrels.

Crude oil traders in Asia attribute weaker trading sentiment in the region to ample supply and higher sour crude flat prices.

"Front end length," said one Singapore based trader, adding there were "a lot of additional barrels in a market that doesn't need them."

Outright cash Dubai crude prices followed global crude sentiment higher at the start July, but tumbled quickly thereafter. September Dubai cash stood at $75.60/b July 2, but has since fallen $4/b to be assessed at $71.60/b Tuesday.

The Brent/Dubai Exchange Futures for Swaps spread has also narrowed considerably since the start of the month. This makes Dubai-linked crudes -- typically medium to heavy sour Middle Eastern crude grades -- relatively expensive compared with Brent-linked crudes in Asia.

The September Brent/Dubai EFS has narrowed from $3.67/b on July 2 to be assessed at $1.80/b on Tuesday.

--Eesha Muneeb, eesha.muneeb@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com