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Benchmark Dubai shows unique strength amid bearish crude landscape

Singapore — Asian benchmark Dubai crude continued to remain firmly backwardated, despite a rout in global oil prices that have pushed other major price markers such as ICE Brent and NYMEX WTI deep into a contango.

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Traders say Dubai is underpinned by strong Asian demand and firm refining margins for residual fuels, while the possibility of an OPEC-led production cut is providing additional support.

"Demand from Asia remains good, particularly from China and India, for the Middle Eastern grades. This is possibly keeping the Dubai structure backwardated," Stephen Innes, head of trading at OANDA, said.

The spread between front-month December and January cash Dubai has remained firmly in backwardation so far this month, averaging 29 cents/b to date, S&P Global Platts data showed.

Dubai swaps also continued to be backwardated, with the front-month December/January spread closing at 29 cents/b as of 4:30 pm Singapore time (0830 GMT) Thursday, Platts data showed. The spread was bid at 25 cents/b as of 0300 GMT Friday.

In comparison, the spread between front-month January and second-month February ICE Brent crude futures has been in a contango for more than a month, averaging at minus 19 cents/b as of 0830 GMT Thursday so far in November.

Similarly, the spread between front-month January and second-month February NYMEX light sweet crude futures has also been strongly in contango, averaging at minus 16 cents/b as of 0830 GMT Thursday so far in November, Platts data showed.

The spread between the front month and second month Oman futures contract traded on the Dubai Mercantile Exchange is also in a contango structure, with the January/February spread settling at minus $15 cents/b Wednesday, DME data showed.

A contango structure is also seen for China's crude oil futures traded on the Shanghai International Energy Exchange or INE. The January/February spread on Thursday settled at a contango of minus 76 cents/b, according to INE data. Low liquidity seen for the prompt month contracts at the end of the month was a strong reason for the Oman and China crude futures contracts to be in a contango structure, market sources said.

Supportive fundamentals in the sour crude market continued to keep the Dubai prompt market structure in backwardation, they added.

Product margins for fuel oil, along with limited waivers provided for sanctioned Iranian oil has supported heavy sour crudes despite weaker global oil prices, market sources said.

The Singapore high sulfur fuel oil market has been steeply backwardated amid supply tightness caused by lower arbitrage inflows, helping the heavier crude oil curve strength. The 380 CST December/January swaps spread touched three-and-a-half-year highs in November, hitting $11.80/mt on November 20, Platts data showed. The spread since then has eased some of its gains to settle at $11.5/mt as of 08300 GMT Thursday. Investors would be closely looking out for outcomes from the G20 meeting scheduled for later this week, and the OPEC/non-OPEC meeting in Vienna over December 6-7, where a decision on an oil production cut is set to be taken.

--Avantika Ramesh, avantika.ramesh@spglobal.com

--Atsuko Kawasaki, atsuko.kawasaki@spglobal.com

--Jeslyn Lerh, jeslyn.lerh@spglobal.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com