Oman crude oil trading on the Dubai Mercantile Exchange in March drifted lower over the course of the month, before geopolitical tensions resurfaced in the final week following military strikes against rebel factions in Yemen.
However, a potential deal in Iran that would allow for a significant increase in the country’s oil exports dampened prices going into the contract expiry last Tuesday.
The monthly average price of the DME for March, which is used by Oman and Dubai to set their official selling price (OSP) was US$55.09 per barrel, down $1.12 from the February monthly average of $56.21. The contract for June loading Oman crude closed at $52.84, a fall of $5.83 from the $58.67 per barrel February close, or 10 per cent.
Continuing concerns regarding high stock levels and sluggish demand growth heaped downwards pressure on oil prices for much of the month, but following the strikes against Yemini rebels Oman benchmark rallied by more than $4 per barrel in a single day, or almost 8 per cent.
While Yemen itself is a relatively minor player in terms of oil exports, its proximity to Saudi Arabia and the key Bab Al Mandab transit point, the wider implications of rising geopolitical tensions in the Middle East were viewed as bullish for oil.
“This is a subset of a broader regional conflict, and as it intensifies, the odds of it affecting a major oil producer continue to rise,” said Seth Kleinman, an analyst at Citigroup in London.
However, in the past few days of March these gains were largely eroded on speculation that a deal over Iran’s nuclear programme could be reached, which would open the way for Iran to increase its oil exports.
Iran currently produces about 2.8 million barrels per day, according to a Reuters survey, but sanctions limit exports to about 1 million bpd. If a permanent deal is reached then exports are expected to ramp up this year, but of more pressing concern is the 30 million barrels of crude Iran has stored on a fleet of oil tankers.
The number of cargoes being sold in a short space of time is likely to saturate the market, noted analysts, with refiners unable to absorb such a large volume of additional crude.
The average price of Oman crude during the first quarter of 2015 was $52.66 per barrel, marking the third consecutive quarterly fall in oil prices. Against the North Sea Brent crude benchmark, Oman was trading at a discount of $2 to $2.50 per barrel during March with little change on the previous month.
The new front-month June contract closed last Wednesday little changed at $53.61, as the market awaited news regarding Iran.
Paul Young is the head of energy products at DME
