Fears of a coming oversupply are weakening the Brent futures structure, while increased appetite for Middle Eastern crude is supporting the key benchmark prices that the top oil-producing region uses for pricing of barrels loading for Asia. As a result, Brent Crude prices slipped on Monday into a rare, albeit tiny, discount to the Dubai benchmark prices.
Brent was trading $0.03 per barrel below the Dubai oil price, the benchmark against which the Middle Eastern producers price their oil loading for their top market, Asia.
The discount of Brent to Dubai prices, a rare occurrence on the market, is the first such instance since April, according to oil market and pricing data compiled by Bloomberg.
Expectations of a glut later this year have been weighing on Brent Crude and WTI prices as speculators cut their bullish bets and boost bearish positions in the two most traded crude oil futures.
Despite the fact that the market appears balanced near the end of the peak summer demand period in the northern hemisphere, fears are that oversupply will materialize in the fourth quarter to depress prices, once peak consumption season and the unwinding of the OPEC+ cuts are over.
Analysts have started to notice narrowing backwardation in the market—a signal that traders believe supply would be plentiful as soon as peak summer travel season ends. The premiums of the prompt futures compared to later-dated contracts have been falling—a sign that traders expect the rise in supply to soon ease the market tightness.
At the same time, the Dubai prices have been supported by increased demand in Asia, in India in particular. India faces a doubled tariff for its goods imported by the U.S.—at a massive overall 50% tariff—as early as on Wednesday, as the United States has increased pressure on India over its imports of Russian oil. As a result, demand for Middle East crude among Indian refiners is growing, supporting the Dubai price.
By Tsvetana Paraskova for Oilprice.com
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