Oman crude premium over Dubai falls to $4.22 as cargo availability weighs
Key Facts
Oman crude's premium over Dubai fell to $4.22 a barrel during the week of publication, according to OilPrice, citing General Index data reported by Bloomberg. The spread reached its lowest level since late July as cargo availability put pressure on the Gulf's physical crude market. June Goh, senior oil market analyst at Sparta, said the pressure stemmed from multiple cargoes offered at short notice. Describing market conditions, she said "the Gulf crude market came under pressure from multiple cargoes available at short notice." The premium declined amid this immediate availability of crude, while concerns over future supplies continued to influence futures trading, according to Sparta.
In Saudi cargo pricing for Asia, Arab Light's discount for November shipments widened to $5 a barrel below the regional benchmark, according to The National, citing a Bloomberg survey. October shipments carried a discount of $2 a barrel to the same benchmark before the discount widened for the following month. The decline in Saudi crude's price relative to the regional benchmark coincided with the fall in Oman's premium in the Gulf crude market. On transport, OilPrice reported that freight rates reached record levels amid a shortage of available tankers. Physical crude price movements in the region were thus accompanied by rising shipping costs, with a shortage of vessels continuing to exert pressure, according to the website.
On production, the U.S. Energy Information Administration estimated that Middle East crude production shut-ins averaged 4.8 million barrels a day in September. The agency compared that volume with an average of 5.8 million barrels a day in August, reflecting a decline in shut-in production between the 2 months. In Saudi Arabia, The National reported that flows through the East-West pipeline had recovered to about 5.8 million barrels a day by October 6. The recovery in Saudi pipeline flows followed the period in which the U.S. agency's estimates showed a decline in shut-in production across the region. These developments in production and transport routes coincided with the increased availability of spot cargoes described by Sparta in the Gulf crude market.
Against the backdrop of supply developments, Saudi Energy Minister Prince Abdulaziz bin Salman told an energy conference in Riyadh that "resilience is built before a crisis begins," according to The National. His remarks came in the context of the recovery in Saudi oil flows through the East-West pipeline covered by the newspaper. In its assessment of regional risks, the U.S. Energy Information Administration linked the continuing conflict to fluctuations in crude flows through the Strait of Hormuz. The agency's assessment also covered continued fluctuations in flows through alternative routes, alongside passage through the strait. It warned that this disruption to crude flows could increase price volatility in the short term, even as shut-in production in the region declined.
In the futures market, Sparta said trading remained influenced by concerns over future supply tightness despite easing pressure in the physical market. Describing this aspect of pricing, it said "futures are still trading on concerns over future supply tightness." In its October outlook, the U.S. Energy Information Administration estimated that spot Brent prices would average $105 a barrel in the fourth quarter. The agency raised that estimate by $14 a barrel from its forecast the previous month. Its outlook for the coming period coincides with its warning of continued fluctuations in crude flows through Hormuz and alternative routes, and the potential impact on short-term price volatility.
On production policy, 7 major oil-exporting countries agreed on Sunday to keep output steady during November, according to the Associated Press. The decision covers next month's production by the countries participating in this coordination within the OPEC+ alliance. The countries are scheduled to meet again on November 1 to review oil market conditions, according to the agency. The next meeting comes amid a declining physical crude premium in the Gulf and continuing concerns over future supplies in the futures market. After the producers' meeting, the U.S. Energy Information Administration's next Short-Term Energy Outlook is due on November 10, according to the schedule announced by the agency.