The Middle Eastern crude market is showing further signs of weakness, amplifying concerns about a global glut that could drag prices lower, while enabling Asian traders to shrug off developments in Venezuela.
The discount of the regional Dubai benchmark to Brent futures — known as the Brent-Dubai exchange of futures for swaps, or EFS — was at the widest since August on Monday, suggesting ample supplies. The forward curve for Dubai swaps, meanwhile, is back in contango, a bearish pattern marked by nearer-dated contracts trading at discounts to later ones.
In addition, differentials between spot cargoes and the Dubai benchmark are collapsing. Oman crude — among favorites for top importer China — was near parity against Dubai, compared with a premium of nearly $1 a barrel at the end of last month, according to General Index data. It also pegged United Arab Emirates’ Upper Zakum at a 35 cent discount, the weakest since late 2023.
The global oil market has been dominated in recent months by concerns that worldwide supplies have been running ahead of demand after OPEC+ producers as well as other drillers ramped up output. Against that backdrop, Brent futures — the leading oil benchmark — sank by 18% last year to cap their worst annual showing since 2020. Many banks now expect further weakness, with Morgan Stanley reducing a slew of price forecasts this week.
The Middle East forms a critical part of the overall picture as the region ships about a third of the world’s crude, and is the mainstay supplying region for refiners in Asia. Reflecting the current weakness, Saudi Aramco this week slashed selling prices to its main customers in Asia for a third month, putting differentials of the flagship Arab Light grade at a fresh five-year low.
The regional looseness has acted to temper concerns that the US intervention in Venezuela — with the capture of Nicolás Maduro and partial blockade of tankers — may disrupt flows from the South American nation. That matters as refiners in China have typically been the leading takers of Venezuelan oil. Still, so far there have been no obvious signs yet of a rush among mainland buyers for alternative Middle Eastern grades such as Iraqi Basrah, according to traders.
“The surplus is hitting the Middle East market, with basically all indicators pointing toward a weaker physical market,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. It’s a recurring theme, “with participants not appearing to be fazed by supply risks,” he added.
In the Middle East, there has also been heavy selling in the trading windows that set benchmark Dubai prices, with few players willing to put up strong bids to counter bearish pressure, traders familiar with the matter said. They asked not to be named as they’re not authorized to speak publicly.
About 8 million barrels of February-loading crude from the region has yet to find buyers, including grades such as the UAE’s Upper Zakum and Qatar’s Al-Shaheen, the traders said. That is unusual as February-loading supplies typically conclude trading by the end of December.
The backlog of sales makes it at least the fourth straight month that Arab-Gulf crude volumes have been unable to find homes. Normally, the region is able to sell most of the oil it offers.
Brent traded below $62 a barrel on Tuesday, down 19% over the past 12 months.
