The benchmark Dubai crude market structure has flipped back to contango this week as Asian demand dissipated after most refineries were heard to have covered their requirements for October.
Platts Tuesday assessed the spread between first and second month Dubai crude swaps at a contango of 14 cents/b and between the second and third month Dubai crude swaps at a contango of 1 cent/b.
Both spreads flipped to backwardation on Tuesday last week, for the first time since May 31, 2016 and July 10, 2015 respectively, amid an expected uptick in demand as refineries in China and elsewhere in Asia returned from seasonal maintenance.
But the anticipated strength of this demand did not fully materialise, leaving sellers of October-loading cargoes to lower their selling ideas this week.
During Tuesday's Platts Market on Close assessment process, seven October-loading cargoes, comprising three Upper Zakum, two Das Blend, a Qatar Marine and a Murban cargo, were seen offered by oil major BP, South Korea's SK Energy, France's Total and Western trading house Vitol.
October-loading Upper Zakum was best offered at a discount of 25 cents/b to the grade's official selling price, while Das Blend was best offered at a discount of 10 cents/b to the grade's OSP. The offers were standing at close.
Upper Zakum and Das Blend were both heard traded last week at premiums of around 5 cents/b to their respective OSPs.
"So this [the spreads in contango] is a return to normality as market fundamentals did not warrant a backwardated market," said a Singapore-based crude trader.
"Margins are poor and demand is not excessively great, so the spreads easing is just a sign of a return to the market we should have had," the trader added.
S&P Global Platts data showed that second month gasoil cracks over Dubai crude swaps have averaged $9.91/b in August to date, the lowest since April and down from $10.83/b in July.
The second month 180 CST high sulfur fuel oil crack versus Dubai swaps has averaged at minus $6.01/b in August to date, compared with minus $5.51/b in July.
