OPEC+ Has Another Reason to Pause After Key Gulf Grade Plunges
(Bloomberg) -- The premium commanded by one of the Middle East’s most closely watched oil grades collapsed on Monday in a warning sign just days before the monthly OPEC+ meeting on supply.
Oman crude for January loading fell to a premium of about 60 cents a barrel over the regional benchmark on the Dubai Mercantile Exchange, Bloomberg calculations show. That’s down from $2.20 on Friday and more than $3 early last week. Trading volumes were lower than usual, according to DME data, with the contract’s expiry approaching.
Oman oil is a widely-referenced proxy for Middle East sales and Asian demand as it’s accepted by refineries in China, Japan, South Korea and Singapore.
The plunge is likely to catch the attention of OPEC+, which will decide on output levels for January on Thursday. It could give the cartel another reason to press the pause button on restoring supply as it comes on top of the new omicron virus variant and the U.S.-led coordinated release from national reserves.
In another sign of weaker supply-demand balances, unsold Middle Eastern, Russian and African spot cargoes were still available, according to traders. Some of this crude was of medium density with high-sulfur content, similar to the type that’s expected to make up the bulk of the U.S. reserves sale.
Persian Gulf producers are also facing more competition due to an open arbitrage window that’s allowing American crudes to be sold cheaply into Asia, the traders said. Last week, U.S. Mars and Poseidon grades were being offered at several dollars below Oman to buyers in Northeast Asia, after accounting for freight and differences in quality, they said.
Additionally, the relative cost of regional benchmarks such as Dubai and Oman rose against international markers like Brent and West Texas Intermediate, weighing on the attractiveness of Middle Eastern grades.
Tensions between OPEC+ and the U.S. have been rising since President Joe Biden led a group of major consuming nations in a release aimed at quelling fuel prices and inflation. OPEC warned the move may massively swell the global surplus, while the White House said this week that it’s ready to release more crude than currently planned if the need arises.
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