echemi logo
Product
  • Product
  • Supplier
  • Inquiry
    Home > Chemicals Industry > Petrochemical News > Does the widening gap between Brent and Dubai crude oil prices suggest that oversupply is coming back?

    Does the widening gap between Brent and Dubai crude oil prices suggest that oversupply is coming back?

    • Last Update: 2021-07-21
    • Source: Internet
    • Author: User
    Search more information of high quality chemicals, good prices and reliable suppliers, visit www.echemi.com

      Since mid-March, international crude oil prices have continued to fall into a trend of convergence and consolidation, as the market’s long and short news continue to be in a see-saw
    .
    On the one hand, the global economic recovery trend has promoted the demand outlook to continue to pick up.
    On the other hand, OPEC oil producing countries and the US shale oil industry are also cautiously increasing production, which temporarily maintains market balance

    .
    However, the widening of the spread between the benchmark Brent crude oil and the Middle East crude oil is telling investors that the current situation in the global oil market is not as balanced as the surface price suggests

    .

      In fact, the current premium spread of North Sea Brent crude oil relative to Dubai crude oil has reached the highest level in 16 months since the end of 2019.
    This shows that there is already a relative surplus of crude oil supply in the Middle East, so that it must be traded in the international market.
    The price of Brent crude oil is obviously lower than that of the benchmark Brent crude oil to be sold, but once its price concession reaches a certain level, it will also trigger international buyers to shift their purchasing direction, which will trigger the next round of chain reactions in the global oil market sooner or later

    .

      Earlier this month, OPEC and its allies agreed to restore the production capacity of 2 million barrels of crude oil a day by July, so as to gradually lift the production restriction measures since the outbreak of the epidemic last year and pave the way for the final production capacity to return to the right track
    .
    OPEC made such an arrangement because they are confident that the further promotion of the vaccine will further increase the level of global economic activity

    .
    At the same time, the expectation that negotiations on the Iranian nuclear issue are expected to restart has further made investment bets that supply from the Middle East will increase

    .
    This coincided with the time window for the North Sea Oilfield to enter the routine maintenance period, and together created a situation where the Middle East benchmark crude oil price relative to the Brent crude oil discount expanded

    .

      This is in sharp contrast with the previous pattern
    .
    For most of the second half of 2020, the price difference between Brent crude oil and Dubai crude oil is negligible, and the price of the latter has occasionally turned upside down

    .
    As a result, in the context of the decline in the relative price of crude oil in the Middle East, Asian buyers no longer have to look for distance and buy crude oil from the Atlantic Basin and West Africa

    .
    The previous suspension of the Suez Canal has reinforced this situation

    .
    After the passage of the Suez Canal was blocked, the cost of crude oil from the Middle East to Europe has risen, and so has the crude oil from the Atlantic region and West Africa to the Asian market.
    This is also the key factor in widening the price difference between the two

    .

      However, the high price difference cannot be maintained for too long, because the competitive pressure of sellers has begun to pass
    .
    Since last week, oil-producing countries such as Angola and Nigeria in West Africa have also followed up to lower crude oil export prices, and some contracts have even dropped to new lows since November last year

    .
    International buyers are also paying attention to the expected impact of Iran’s subsequent recovery of export capacity, because OPEC’s production cut did not take into account Iran’s previously lost export share due to sanctions.
    Therefore, once the country resumes exports even partly It may subvert the global crude oil supply and demand balance, which is still quite fragile in fact

    .

      Analysts pointed out that the current price difference between Brent and Dubai crude oil may also be a positive factor for the Middle East oil-producing countries, which play a leading role in OPEC, to take the opportunity to expand their global market share
    .
    However, the flexibility of both buyers and sellers in the market also means that the pattern of high Brent benchmark oil prices will not continue.
    Once the oil-producing countries make mistakes in their judgments about the prospects of supply and demand, they will be too aggressive in their efforts to increase production and reduce prices.
    , It is still possible to shoot yourself in the foot

    .

    This article is an English version of an article which is originally in the Chinese language on echemi.com and is provided for information purposes only. This website makes no representation or warranty of any kind, either expressed or implied, as to the accuracy, completeness ownership or reliability of the article or any translations thereof. If you have any concerns or complaints relating to the article, please send an email, providing a detailed description of the concern or complaint, to service@echemi.com. A staff member will contact you within 5 working days. Once verified, infringing content will be removed immediately.

    Contact Us

    The source of this page with content of products and services is from Internet, which doesn't represent Echemi's opinion. If you have any queries, please write to service@echemi.com. It will be replied within 5 days.

    Moreover, if you find any instances of plagiarism from the page, please send email to service@echemi.com with relevant evidence.