A Key Oil Spread Heralds Rising Competition Among Suppliers - Bloomberg video

A Key Oil Spread Heralds Rising Competition Among Suppliers - Bloomberg

The battle for oil sales is set to become more intense as rising output from OPEC+ and the Middle East boosts the competitiveness of the region’s shipments, potentially forcing other suppliers to discount their barrels.

The warning signs can be seen in the widening of a key price spread that’s used by traders to determine the affordability of cargoes from the Middle East against Brent-linked barrels. Right now, the gap is close to the widest in more than 16 months, and that doesn’t bode well for oil that’s priced against Brent.

“There’s much cheaper crude, and a lot of it coming from the Middle East,” said Grayson Lim, a senior oil analyst at FGE. “Those Brent-linked cargoes will need to be offered at a huge discount for buyers in the region to snap up the barrels,” he said, referring to Asian users. “But if they’re heavily discounted, there’s a chance that Chinese buyers may come out to buy.”

Earlier this month the Organization of Petroleum Exporting Countries and its allies decided to relax the deep production curbs that rescued prices from last year’s pandemic-driven collapse. The move will see more than 2 million barrels a day in supply restored in stages through to July amid expectations that the roll-out of vaccines will underpin further gains in energy consumption. So far, the plan has been defended by leading architect Saudi Arabia, with futures for Brent and West Texas Intermediate up almost a quarter this year.