The benchmark Dubai crude market structure moved deeper into backwardation Friday, as demand for crude oil from Asian refiners strengthened ahead of the winter season amid an improvement in oil product cracks, and days ahead of a meeting in Algiers where producers are expected to discuss a production freeze.
S&P Global Platts on Friday assessed the spread between first- and second-month Dubai crude swaps at a backwardation of 15 cents/b, the strongest since May 31, when it was at 26 cents/b.
Representatives of OPEC member countries are expected to convene on the sidelines of the International Energy Forum over September 26-28 in Algiers, Algeria, where speculation has been rife that a production freeze could be discussed.
Meanwhile, strong demand from Asian refiners has lifted differentials for physical crude cargoes this month as product cracks showed signs of improvement.
Platts data showed that second-month gasoil and jet fuel cracks versus Dubai swaps averaged higher in September to-date, at $10.78/b and $11.79/b respectively, up from four-month lows of $9.99/b and $11/b in August. The second-month naphtha crack to Dubai swaps, meanwhile, averaged at minus $1.76/b in September so far, up from a 15-month low of minus $3.05/b in August.
On fuel oil, the second-month 180 CST high sulfur fuel oil crack versus Dubai swaps averaged at minus $4.55/b in September to-date -- the highest since February 2015, when it averaged at minus $3.64/b. Last month, the 180 CST HSFO crack averaged at minus $5.98/b.
Meanwhile, trades for light sour Qatar Land crude this month were heard at premiums of 20-30 cents/b to its official selling price, compared to around flat to premiums of around 5 cents/b the previous month.
The stronger premiums were traded despite Middle East producers making stronger-than-expected changes to their respective OSPs this month, which some traders say indicate confidence on the producers' part that demand would remain firm going into the fourth quarter.
"The light sour market is very strong. Some buyers [are] willing [to] pay high premiums lately. Winter generally sees stronger demand for a lighter crude complex versus a medium/heavy segment," said a North Asia crude trader.
The second-month Brent/Dubai EFS, which enables holders of ICE Brent futures to exchange their Brent futures position for a forward-month Dubai crude swap, was assessed at $2.90/b on Friday, slightly down from the two-month high of $3.15/b on September 8.
OPEN INTEREST SURGES MID-MONTH
Open interest for front-month Dated Brent versus Dubai 1st line derivative contracts rose a staggering 160.32% by mid-September to 3.28 million barrels, from 1.26 million barrels in mid-August, according to ICE data as of Monday.
The front-month Dated Brent/Dubai spread contracts in September were for October delivery, while those in August were for September. These and similar derivative contracts are listed on the Intercontinental Exchange and settled against the daily difference between ICE Brent and Platts prompt Dubai assessment prices.
Open interest on Dubai first-line outright futures contracts also increased 20.87% as of September 15, compared to August 15, with front-month open interest for October delivery contracts in mid-September reaching 58.491 million barrels -- up from 48.393 million barrels in August for September delivery.
Open interest for the front-month Dubai first-line contract has risen consecutively month on month since May 2016, when it rang in at 44.236 million barrels as of May 31 for June delivery contracts.
The Brent first-line/Dubai first-line futures spread contract, however, saw a slight decline in front-month open interest in September, falling 1.08% to 11.168 million barrels for October delivery contracts, from 11.290 million barrels of September delivery contracts in August.
Open interest for all three contracts combined rose 19.68% from August, and combined interest for all deliverable months in September stood at 344.531 million barrels, a 1.51% rise from 339.423 million in August.
