Oman crude beats a late summer retreat

Oman crude oil trading last month on the Dubai Mercantile Exchange tumbled by more than US$4 per barrel from July. Above, an oil facility in Oman. Fahad Shadeed / Reuters

Oman crude oil trading last month on the Dubai Mercantile Exchange extended the summer retreat with the average monthly price tumbling by more than US$4 per barrel from July, the biggest monthly fall in more than a year.

The monthly average price of the DME, which is used by Oman and Dubai to set their official selling price (OSP) was $102.23 a barrel, down from $106.24 in July – it was also the lowest OSP since June last year, when it dropped to $100.21. The $4.01 fall was the largest monthly decline since March last year, when it dropped by $5.71.

Market watchers generally cited softening global demand, and while the political turmoil in Iraq and between Russia and Ukraine has supported energy prices throughout the summer, the markets have remained well supplied.

The International Energy Agency, which represents industrialised nations on oil policies, set the bearish tone for oil prices with its August report – cutting its forecast for global demand growth to 1 million barrels per day (bpd), down 180,000 bpd, citing weaker-than-expected demand in the second quarter.

“Remarkably low oil deliveries in both Europe and North America helped slash this report’s estimate of global demand growth … to a low of more than two years,” the agency said.

The Paris-based agency also revised its annual forecast for China down in its report because of lower estimates for diesel and gas oil use, predicting that oil demand would rise just 2.9 per cent for the whole of the year, rather than its original estimate of 3.5 per cent.

On the supply side, Opec’s oil production rose last month from July, a Reuters survey found, as the recovery in Libyan supply held up and Angola and Iran boosted supplies. This outweighed a further decline in Iraq.

The survey also noted that Saudi Arabia and other core Arabian Gulf Opec producers kept output largely flat and have so far not cut back to support prices. Total Opec exports last month were estimated at 30.1 million bpd, up from 30 million bpd in July.

Iraq’s production fell the most, dropping 140,000 bpd month-on-month. According to the latest Reuters survey, the country’s oil exports from its southern terminals averaged about 2.3 million bpd. The export figures represent a fall of 280,000 from May, when output reached its highest level since 2003.

Global crude prices in general have been weak, and poor margins were blamed as refineries in both Europe and Asia cut back on processing.

The European Brent benchmark had been trading at a premium of as much as $4 a barrel over Oman earlier this year, but with the slump in the European market, this slipped closer to $1 during August and now stands at about $1.70.

Late last month, the French bank BNP Paribas revised its annual oil price forecasts for Brent, cutting this year’s forecast to $108 a barrel and next year’s to $106.

The highest monthly DME average this year came in June (for August delivery) when the OSP was $108.08 a barrel. Despite the declines of the past two months, the value of Oman crude traded on the DME has now been above the psychologically important mark of $100 a barrel for 25 consecutive months

The new November contract on the DME settled on Monday at $101.69.

Paul Young is the head of energy products at DME

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