Oman crude oil trading on the Dubai Mercantile Exchange (DME) last month trended higher as forecasts for increased demand this year and wider supply worries outweighed weaker near-term fundamentals such as the prospect of slower demand from Asian customers in the second quarter because of refinery maintenance.
The DME’s April Oman crude contract settled at US$105.27 per barrel, up $1.60 or 1.5 per cent from the closing January price of $103.6. The DME monthly average, which Oman and Dubai use to set their official selling price, was $105.04, up from $104.04 in January.
Global oil prices last month initially continued the bearish tone set in January, softening to a six-month low of about $102 early in the month, but rebounded on more bullish demand forecasts for 2014 and ongoing freezing conditions in the United States, the world’s largest oil consumer.
The International Energy Agency (IEA) said in its February report that surprisingly strong demand in the US and other industrial nations had pushed oil stocks to the lowest level in five years.
The energy watchdog noted that oil stocks in the Organisation for Economic Cooperation and Development nations tumbled by 1.5 million barrels a day in the last three months of 2013, the steepest quarterly decline in 14 years.
“Far from drowning in oil, markets have had to dig deeply into inventories to meet unexpectedly strong demand,” the IEA noted.
The IEA said that it now expects global demand this year to increase by 1.3 million barrels per day (bpd) to 92.6 million bpd, a 50,000 bpd increase on its previous forecast.
The February price gains came despite the seasonal weakness in crude oil demand from Asia, where refinery maintenance typically reduces crude oil demand in the second quarter of the year – although wider concerns over Chinese demand resulted in Oman crude prices easing slightly. Oman’s discount to the North Sea Brent benchmark was in the $3.20-$3.50 range, reflecting the reduced second-quarter demand from Asia.
On the supply side, ongoing disruptions in Libya, South Sudan and Angola were all contributory factors in firmer prices last month. But Iraqi exports recovered strongly after the weather-related delays in January, with a Reuters survey reporting exports from the southern terminals up by some 300,000 bpd. The same report put Iranian supplies at 2.82 million bpd, or up 70,000 bpd on the month, and the fourth consecutive monthly rise.
Meanwhile, the US West Texas Intermediate (WTI) benchmark outperformed both Brent and Oman, as stock levels in the key storage and distribution hub of Cushing, Oklahoma, dropped for a fourth straight week as the sustained cold snap in North America continued to deplete oil stocks.
That helped to narrow US crude’s discount to Brent to less than $7 a barrel for the first time since early October, as WTI broke the $100 a barrel for the first time this year – countering some analyst views that a shale-lead supply glut would lead to increasingly depressed prices in North America.
Paul Young is the head of energy products at DME
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