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Dubai futures: Sour crude still pricing in Middle East risk despite reassurances

Spreads for benchmark Dubai crude futures were mixed in mid-morning trading hours on Wednesday, as market participants continue to price in risk premia for the Middle East following an overnight press conference by the country’s new energy minister, Prince Abdulaziz bin Salman.

The Dubai October/November intermonth futures spread was unchanged between 4:30 pm in Singapore (0830 GMT) Tuesday evening and 11 am (0300 GMT) Wednesday morning, at $1.59/b, despite flat price on crude futures seeing a $3-$5/b correction after the Saudi prince’s comments.

Saudi Arabia has already restored more than half of the oil production capacity damaged in Saturday’s attacks, and expects to restore its production capacity to 11 million b/d by the end of September and recover its full capacity of 12 million b/d two months later, Abdulaziz said in his press briefing.

The Saudi energy minister’s remarks reversed prices for crude futures in overnight trading, with NYMEX front-month crude settling $3.56/b lower at $59.34/b, while ICE front-month Brent settled $4.47/b lower at $64.55/b.

But crude traders in Asia told S&P Global Platts the market for light crude could remain tight in the coming weeks.

Dubai’s discount to ICE Brent futures narrowed Wednesday morning, implying that whilst the global knee-jerk reaction in oil prices was allayed after Saudi Arabia’s comments, traders East of Suez are still pricing in risk for physical flows from the Middle East to Asia as reflected in Dubai crude prices.

“There is a lot of volatility and it’s difficult to trade in times like these,” one trader said of the situation in Asia.

“These kind of events have happened maybe only 4-5 times before and are very unusual,” the trader added.

The November Brent/Dubai Exchange of Futures for Swaps spread narrowed to $3.90/b at 11 am in Singapore on Wednesday, after it had been assessed at $4.16/b Tuesday evening at 4:30 pm.

Meanwhile, tightness reflected in the sour crude market for the months ahead eased considerably, with the November/December Dubai futures spread falling to $1.13/b Wednesday morning, from $1.54/b Tuesday evening.

Platts assessed November cash Dubai’s premium to futures at $2.85/b Tuesday evening, a six-year high. The spread was previously higher at $2.87/b on September 19, 2013, Platts records showed.
Source: Platts

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