In contrast to international benchmark futures prices, prices for physical crudes from the Middle East fell this week, as oil continues to flow from the Persian Gulf in ship-to-ship transfers off Oman and producers offer competitive prices to Asian buyers.
Some crude grades from Iraq and Oman have sunk into deep discounts compared to the physical Dubai benchmark. Iraqi oil Basrah Medium, for example, was recently sold at a discount of $10 a barrel to the Dubai benchmark, compared with near parity with Dubai crude a month ago, traders said. Bloomberg Friday.
Significant flows of crude oil from the Middle East in recent weeks have started to put pressure the key measure of the strength of physical supply outside the region. Oman’s crude premium over Dubai, a measure of the strength of the Middle East market, fell this week to its lowest level since late July.
The Oman-Dubai crude oil differential had soared to $65 per barrel in March when the Strait of Hormuz was virtually closed and no crude cargoes were leaving. Oman’s crude premium then turned into a discount during the three weeks in mid-June and early July, during which the United States and Iran sought to negotiate a deal.
The differential exploded again in August and especially in September, when hostilities resumed.
But as Middle Eastern producers ramped up shuttle shipments through the Strait of Hormuz and ship-to-ship transfers in the Gulf of Oman, flows have recovered in recent weeks.
The greater availability is driving down the prices of physical crudes from the Middle East, in a movement opposite to that of crude oil. Brent futureswhich hit a five-month high of $114 a barrel this week.
The futures market is disconnected from fundamentals and physical markets, with the paper market fearing escalation and further supply disruption, while the physical market reflects the increase in volumes passing through Hormuz.
By Charles Kennedy for Oilprice.com
More important reading on Oilprice.com
Gn world
