Oman crude bounces back

The monthly average price of the DME for March, which is used by Oman and Dubai to set their official selling price was US$58.68 per barrel, up $3.59 from the March monthly average of $55.09.

Above, the Bukha A Oman oil field in Oman. Pawan Singh / The National

Oman crude oil trading on the Dubai Mercantile Exchange rallied strongly last month on a combination of Middle Eastern geopolitical concerns and increasing signs that United States shale oil production is levelling off, lifting prices to the highest levels since December.

The monthly average price of the DME for March, which is used by Oman and Dubai to set their official selling price (OSP) was $58.68 per barrel, up $3.59 from the March monthly average of $55.09. But more significantly, prices gained strongly during the month as the contract for June-loading Oman crude closed at $62.96 per barrel, a gain of $10.12 from the $52.84 March close, or almost 20 per cent — the highest monthly percentage gain since 2009.

Prices have now gained about $20 per barrel from the six-year low in January of $43.35.

The Saudi-led campaign against the rebels in Yemen was a key driving force in April’s price rally, raising geopolitical tensions in the region and the prospect of wider conflict. “The Saudi strikes are adding fuel to the fire for oil prices,” Bloomberg quoted Amrita Sen, the chief oil analyst at consultant Energy Aspects as saying.

On the US supply side, opinion is divided on how successful Opec’s aim of slowing down output from outside the producers’ group has been. US oil stocks remain stubbornly at record high levels, but with the US oil rig count down by 50 per cent from the 2014 peak, there appears to be a clear shift in sentiment.

The research group Pira Energy Group said: "Pira believes that vast majority of the bearish news is already out and that the price lows for global crude oil markers are in." Pira expects the build-up of US oil stock to peak this month, then start to decline somewhere between June and August. It noted that US oil production is already showing signs of decline, while global demand is picking up.

Middle East production remains robust and Saudi Arabia has since increased production to above 10 million barrels per day, while Iraqi exports hit another multi-decade record above 3 million bpd in April. But with the weaker dollar and healthy refining margins there is no shortage of buying interest.

The physical market, however, was dominated by Chinaoil, the trading arm of PetroChina, which for the second time in six months was behind 100 per cent of the physical crude oil buying in the regional Dubai benchmark, which includes three Middle East crude grades — Dubai, Oman and Abu Dhabi’s Upper Zakum.

Chinaoil bought a total of 55 cargoes for June loading (49 Oman and six Upper Zakum), which is believed to be a world record buying spree on any global oil benchmark, beating the 50 Brent cargoes bought by a single company in 1988. Chinaoil bought 47 spot cargoes via the Dubai mechanism last October.

However, it was unclear if the huge spot buying programme was a signal for a sharp increase in crude oil demand from China, with market watchers noting that fellow Chinese trader Unipec was the seller of about 70 per cent of these cargoes to Chinaoil. Oil traders said that the market would need further evidence of Chinese buying in May before determining there was a clear upturn in demand.

The new front-month July contract on the DME ended on Friday at $63.95 per barrel, maintaining April’s firmer sentiment into the new month.

Paul Young is the head of energy products at DME.

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