At the close of September, spot premiums for Middle Eastern crude oil experienced an unexpected decline, even amidst strong demand from leading importer China, according to traders. The oversupply in Asia, particularly from Russia and producers in the Gulf and other regions, appears to have contributed to this downturn.
Traders noted that this sudden drop in benchmark prices—Dubai, Oman, and Murban—might present a challenge for Saudi Arabia, which is anticipated to increase official selling prices next month for November-loading shipments destined for Asia.
According to a Reuters tally based on trade data as of Monday, there were 39 cargoes, totaling 19.5 million barrels of crude, traded during the S&P Global Platts Market on Close process, which assesses the Dubai benchmark.
Several trading companies, including Vitol, Gunvor, PetroChina, and North Petroleum International, acquired these cargoes, maintaining the spot premiums for the Dubai benchmark above $3 in the early part of this month. In mid-September, Dubai’s premium peaked at $3.63 a barrel, the highest in six months.
Market support was bolstered by concerns over potential disruptions in Russian oil exports due to Ukrainian drone strikes and possible US sanctions, alongside China’s continued oil stockpiling efforts.
Leading Seller Mercuria
Trading house Mercuria has established itself as the primary seller during the MoC process this month. The European trader moved 36 cargoes, including one of Oman crude and two of Qatari al-Shaheen crude, with the remaining being Abu Dhabi’s Upper Zakum grade, as indicated by trade data received by Reuters.
Mercuria sourced more Upper Zakum crude than was on the spot market, purchasing additional cargoes from Asian refiners like Formosa Petrochemical and Bharat Petroleum Corp Ltd, as reported by various sources.
As of Monday, cash Dubai premiums fell to 88 cents, reflecting a loss of more than two-thirds of their value over the previous three sessions, according to Reuters data.
One source pointed out that a significant number of November-loading cargoes, primarily Upper Zakum crude, remain unsold in the market. Another source noted that Russia is increasing its crude exports following damage to its refineries from Ukrainian drones.
Traders also highlighted the availability of ample cargoes from producers in other areas such as Brazil and Europe. The market dynamics shifted when dated Brent traded at a notably wide discount of $3 a barrel against Dubai, in contrast to the typical pricing structure, where low-sulphur Brent commands a premium over high-sulphur Dubai.
Analysts from consultancy FGE suggested that by late October or early November, Asia may experience an influx of oil from the Atlantic Basin, leading to oversupply conditions. They noted, “As Asia’s crude demand declines and a global oil surplus of around 2 million barrels per day becomes evident in inventory, we expect to see contango developing in the market.”
Contango describes a market situation where current prices are lower than future prices, indicating that supply levels are considered comfortable.