Due to tighter supply of medium and heavy sour crude oil, Middle Eastern benchmarks for sour crude grades have been trading higher than Brent Crude prices since the beginning of February in a rarely seen development in global oil prices.
On February 1, the cash Dubai crude price edged above Brent Crude for the first time since August 2015, according to S&P Global Platts data.
Three key factors have been tightening the global supply of heavy
crude grades, thus pushing the prices of Dubai spot and DME Oman crude futures
higher this month, traders and analysts tell Reuters.
First, OPEC is currently on a mission to cut supply again in a bid
to rebalance the market and lift prices, and many OPEC producers do pump and
cut from medium to heavy grades.
Then there are the latest U.S.
sanctions on Venezuela’s oil—typically of the heavy variety—which drives demand
for heavy grades from other regions as buyers seek alternatives. This has also
helped push the Dubai and Oman benchmark prices
higher than Brent Crude’s—an unusual occurrence on the
market, where lower-sulfur, sweet grades from the Atlantic basin and the North
Sea are typically more expensive than the sour grades from the Middle East or
Latin America.
The third key reason for Middle Eastern sour crude to trade higher
than Brent is the uncertainty over whether the U.S. will extend waivers (if
any) to Iran’s oil buyers when the current exemptions expire in early May.
According to traders who spoke to Reuters, prices of the U.S. Mars
grade and of sour grades from Latin America like Colombia’s Castilla have
jumped as interest has also significantly increased after the United States
announced sweeping sanctions on Venezuela’s oil sector at the end of January.
After the sanctions were imposed,
the heavy sour grade Castilla and Vasconia, a medium sour grade from Colombia,
saw their prices jump last week to their highest since September 2017, as per S&P Global
Platts data.