Oil & Gas

01 Jul 2019

Asia Sour Crude Market Mulls OPEC Deal, US Data

01 Jul 2019  by Eesha Muneeb   
Sour crude spreads in Asia traded within a narrow range in mid-morning trading hours on Monday, as market participants weighed the benefits of a bullish OPEC deal against other geopolitical developments over the weekend.

The spread between benchmark Dubai crude oil futures and ICE Brent futures narrowed as the front month contracts for both instruments rolled over from August to September trading cycles Monday.The August Brent/Dubai EFS was assessed at $3.19/b on its last trading day on June 28, Friday. As of Monday 11:00 am in Singapore, the new front month September EFS was at $2.86/b.

September EFS was assessed at $2.79/b on Friday at the close of trading in Asia, remaining largely rangebound over the weekend.

Sour crude traders in Asia see a tight outlook for high sulfur crude volumes produced in the Middle East as OPEC+ is largely expected to extend its production cut agreement. The group and nine other allied oil producing countries are meeting Monday and Tuesday in Vienna.

Russia and OPEC kingpin Saudi Arabia announced a mutual agreement over the weekend extending Russia's cooperation with OPEC for another nine months.

The supportive kickoff to discussions in Vienna over the weekend increased the likelihood that OPEC members will also extend their end of the 1.2 million b/d production cuts in place since January 2019.

Meanwhile, data released by the Energy Information Administration in the US over the weekend showed the country crossed 12 million b/d of production in April, which is a first.

The threshold cements the US' position as top crude oil producer in the world at the moment, and is a bearish factor to counter the tightening effect of OPEC+ production cuts.

US crude production, which largely comprises light, low sulfur barrels, has put pressure on high quality crude premiums in recent months with excess supply of such grades in the market.

Despite a fast-approaching deadline for the International Maritime Organization's low sulfur cap on seaborne vessels starting January, spreads between low and high sulfur crude have refrained from widening as would be expected in this case.

The Brent/Dubai EFS -- one of the main indicators of low sulfur crude's premium to high sulfur -- averaged $1.79/b from January to June 2019, Platts data showed Monday.

Typically, a level under $3/b indicates an unusual tightness for high sulfur crude grades linked to Dubai benchmark prices.

Forward structure for Dubai crude has also remained firmly in backwardation for 15 months now, with contango last seen in the Dubai M1/M3 spreads in March 2018.

Backwardation for Dubai M1/M3 averaged $1.18/b over the first half of 2019, Platts data showed Monday.

Platts assessed August cash Dubai at $64.89/b on Friday, June 28. The assessment averaged $61.759/b over June.


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