Turmoil on the global financial markets pushed Oman crude oil trading on the Dubai Mercantile Exchange (DME) to its lowest levels for six-and-a-half years during last month, before a late rebound lifted prices off the lows and it rallied sharply going into this month.
The monthly average price of the DME for last month, which is used by Oman and Dubai to set their Official Selling Price (OSP), was US$47.88 per barrel, down $8.45 from the July monthly average of $56.33, or 15 per cent, as spot prices tumbled below $45 for the second time this year.
The dramatic events on the global equities markets, led by the sharp falls in the Shanghai Stock Exchange Composite Index during last month, set the tone for oil prices as Oman crude tumbled to its lowest level since March 2009 and hit $42.90 per barrel in the final week of the month.
Prices initially recovered on falling United States inventories and Shell’s announcement of a shut-off in Nigerian crude oil production, while the upwards momentum as the month ended was further underpinned by the release of the influential monthly Opec report. It gave a strong indication that the 12-member group could act to shore up prices.
“Opec, as always, will continue to do all in its power to create the right enabling environment for the oil market to achieve equilibrium with fair and reasonable prices,” the report stated.
It also opened up the prospect of dialogue with non-Opec producers.
"There is no quick fix, but if there is a willingness to face the oil industry's challenges together, then the prospects for the future have to be a lot better than what everyone involved in the industry has been experiencing over the past 9 months or so," said the opening commentary in the Opec Bulletin.
“As the organisation [Opec] has stressed on numerous occasions, it stands ready to talk to all other producers.”
The Middle East spot market was largely dominated by a single company last month, Chinaoil, which is the trading arm of the government-owned PetroChina.
Chinaoil bought a record number of Middle East cargoes that are used to underpin the Dubai pricing mechanism, which is used as a reference price for regional producers such as Saudi Arabia and Iraq.
The 72 spot cargoes purchased by Chinaoil included 46 from Oman, 24 from Upper Zakum and 2 from Dubai, according to Reuters, which added that the volume was equivalent to an entire month’s consumption by Australia.
The report also noted that nearly 70 per cent of the cargoes were sold by the rival Chinese trader Unipec, which is owned by China’s largest refiner Sinopec, also a state company.
Targeting specific benchmark grades by the Chinese oil companies is leading to pricing disconnects according to observers, which in turn could encourage Asian refiners to switch some demand away from Middle East grades and take additional crude from Africa, Russia and South America.
As this month began, the new front-month December contract was trading just above $50 a barrel early afternoon yesterday, representing an increase of about 16 per cent from last month’s lows.
Paul Young is the head of energy products at the DME.
Follow The National's Business section on Twitter
