Tighter spot crude supply widens Dubai prompt backwardation to multimonth highs

Prompt time spreads in the Dubai futures market reached a near three-month high Feb. 20, lifted by increasingly bullish sentiment in the oil complex and tighter Middle East sour crude supply for the April-loading cycle.

Platts assessed the Dubai front-month time spread (March/April) at 62 cents/b at the Feb. 20 Asian close, up 33 cents/b, or 113.79%, on the month, S&P Global Commodity Insights data showed. The spread was last higher on Nov. 27, 2023 at 65 cents/b.

Bullish spreads for global crude oil marker ICE Brent also supported sentiment. The prompt M1-M2 spread for ICE Brent crude also reached multimonth highs this week, with the spread settling at 84 cents/b Feb. 20, up 1.2% on the day and the highest since end-October after stripping out volatile end-month spikes.

Middle East sour crude supply have been heard tighter for the April-loading cycle this month. Only 15 cargoes of Qatar’s Al-Shaheen crude were heard available for the April-loading cycle, down from 20 cargoes for the March-loading cycle.

Supply of the UAE’s Upper Zakum crude also fell after state producer ADNOC finished implementing its Crude Flexibility Project — which will allow it to refine up to 420,000 b/d of heavier, sourer crudes at Ruwais, particularly Upper Zakum, while leaving more barrels of lighter, less sour Murban crude available to export.

“The market is tighter than some people think. Al-Shaheen is tight and Upper Zakum is tight,” a trade source said.
US stocks build

Near-term oil prices would likely remain capped on expectations of a build in US commercial stocks, which likely climbed 4.4 million barrels to around 444 million barrels in the week ended Feb. 16, analysts surveyed by S&P Global Commodity Insights said late Feb. 20.

The expected build was driven by weak refinery runs and firm net imports, marking the fourth consecutive week of gains, thereby resulting in inventories to narrow to around 1.6% below the five-year average of US Energy Information Administration data.

More definitive numbers are due for release by the American Petroleum Institute later in the day and the US Energy Information Administration Feb. 22.

EFS spread widens
Moreover, the Brent-Dubai Exchange of Futures for Swaps, or EFS, spread — a key indicator of Brent’s premium over the Middle East sour crude market — also widened to over a three-month high.

The EFS spread was assessed at $1.86/b at the Feb. 20 Asian close, up 36 cents/b, or 24%, on the month, and the highest since touching $2.12/b on Oct. 30, 2023, S&P Global data showed.

The widening EFS spread dampens interests for Asian sweet crude grades as it becomes less economical compared with Dubai-linked grades.

Offer levels for May-delivery barrels of US WTI Midland crude were seen at a premium in the high-$5s/b to April Dubai, DES Asia, up from prior traded levels in the high-$4s/b, DES Korea, according to trade sources.

“WTI paper structure is moving up and freight costs are moving up quickly as well, especially for VLCCs,” an Asia-based trader said.
Source: Platts