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Dubai crude forward curve slips into contango as supply fears ease

Singapore — Intermonth spread for February/March 2019 Dubai crude swaps dipped into a contango Wednesday, as global crude oil supply concerns eased for the first quarter of next year, sources said Thursday.

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The third-month/fourth-month Dubai swaps spread was assessed at minus 2 cents/b for February/March on Wednesday. This is the first time the spread has slipped into contango in more than a year. It was last below parity on September 5, 2017, when it was at a discount of 6 cents/b, S&P Global Platts data showed.

The spread slid deeper into contango Thursday morning, standing at a discount of 5 cents/b as of 0300 GMT in Asia.

Dubai M3/M4

Concerns over global crude oil supply tightness that arose in mid to late 2018 on the back of OPEC production cuts, US snapback of sanctions on Iran and related spare capacity have since eased on estimates of a resurgence in inventories in the first quarter or second quarter of next year, said sources.

Sour crude prices and the market structure -- which are largely correlated to the Dubai swaps market -- have weakened considerably in recent weeks, despite Iran sanctions imposed by the US snapping back into place earlier this week, traders pointed out.

US sanctions on Iranian crude exports went back into effect Monday, although top buyers of Iranian crude were given temporary waivers until May, when they will be expected to cut their purchases significantly.

The US has given temporary waivers to China, India and Turkey -- Iran's top buyers -- as well as Japan, South Korea, Italy, Greece and Taiwan. However, the US is maintaining its goal of eventually reducing Iranian crude exports to zero.

Iranian crude exports to China averaged 783,500 b/d in October, up from around 752,000 b/d in May, Platts trade flow software cFlow showed. Iran has sent almost 20 million barrels of crude and condensate into leased storage in China in preparation for the sanctions

Additionally, crude oil producers such as UAE's Abu Dhabi National Oil Company have also put forward aggressive plans to increase production in the Persian Gulf between 2018 and 2020.

Earlier this week, ADNOC said it intends to boost its oil production capacity to 4 million b/d by the end of 2020 and to 5 million b/d by 2030 under plans approved Sunday by the Supreme Petroleum Council, which also announced new discoveries totaling 1 billion barrels of oil.

"Hopefully doesn't increase too much in Q1/Q2 2019 when global [crude] stocks are expected to increase," a Singapore-based trader said Thursday.

--Eesha Muneeb,

--Edited by Irene Tang,