The price structure of Mideast Gulf benchmark Dubai crude has firmed on the prospect of a tighter supply outlook and recovering demand.
The Dubai intermonth contango, with prompt July prices at a discount to forward values, has narrowed sharply this month as the Opec+ production restraint agreement took effect on 1 May, lending support to Mideast Gulf crude values.
Front-month Dubai narrowed to a $2.96/bl discount to third-month Dubai as of 4.30pm Singapore time today, the spread's narrowest discount since 18 March. The front-month to third-month Dubai contango had reached a record wide spread of $10.93/bl on 21 April amid a supply glut and reduced demand caused by the Covid-19 pandemic.
The Dubai intermonth contango in the forward months has also narrowed to around 50-60¢/bl compared with last month when the contango in the forward months was around $1/bl.
Expectations of reduced crude supplies and the prospect of increased demand as more countries ease lockdown measures mean the period of the "super contango" could be over, market participants said.
Mideast Gulf producers Saudi Arabia, Iraq, Kuwait, the UAE and Oman will account for more than half of the total production cuts of 9.7mn b/d that the 23-country Opec+ alliance has pledged for this month and next, largely from an October 2018 baseline.
Crude demand is also expected to slowly recover as more refineries increase run rates. Abu Dhabi's state-owned Adnoc has begun to restart two crude distillation units at its 817,000 b/d Ruwais refinery complex after a planned shutdown for maintenance.
But a build-up of crude stocks at some key oil consuming countries may keep a lid on prompt spot differentials of Mideast Gulf crudes in the short term. India, which is a large buyer of Mideast Gulf crude, has filled all its available crude storage capacity, including commercial and strategic petroleum reserve facilities, and is holding around 50mn bl in floating storage.
