The curve of the Dubai benchmark is showing signs that rising oil flows from the Middle East are exceeding demand for the first time since early July, when the three-week U.S.-Iran ceasefire allowed millions of barrels to leave unhindered the Strait of Hormuz.
Physical flows have been gradually rising for the past two months as Gulf producers accelerated shuttle-shipping through Hormuz with ship-to-ship (STS) transfers in the Gulf of Oman, once tankers have cleared the chokepoint.
As a result, the November contract of the Dubai benchmark traded at the start of this week at a discount of about $2 per barrel to the December contract, traders and brokers told Bloomberg on Tuesday.
This price curve, known as contango, is the first sign since July that current supply is abundant in the Middle East.
The contango structure, in which prices for contracts dated further out in time are higher than the prompt contracts, suggests that concerns about the immediate lack of crude supply have eased significantly.
Rising supply from the Middle East has weakened both the Dubai and Murban prices in recent weeks, prompting increased buying from Asian refiners, especially those in India who have preferred additional Middle Eastern cargoes to the more expensive Russian barrels with higher freight costs.
At the end of last month, the prices of physical Middle East crude slumped as flows from the region recover and reach pre-war levels in some days and weeks.
In contrast with the international benchmark futures prices, the prices of physical crudes from the Middle East have softened, as oil continues to flow out of the Persian Gulf at volumes close to pre-war levels, excluding Iran.
Two weeks ago, robust crude oil flows out of the Middle East started to pressure the key metric of strength for physical supply out of the region. The premium of Oman crude over Dubai, the measure of the Middle East’s market strength, slumped to the lowest level since the end of July.
By Charles Kennedy for Oilprice.com
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