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Summary
- Dubai crude benchmark’s premium slips back to pre-war levels
- Naphtha goes into contango, diesel and fuel oil backwardation narrows
- Margins for transport fuels retain strength on low stocks
SINGAPORE, June 16 (Reuters) – Spot premiums for crude and some refined products in Asia have fallen back to pre-war levels following a U.S.-Iran deal to end the Middle East conflict, though caution about how soon normal shipping can resume is providing a floor for oil markets.
Prices tumbled across the board on Monday after U.S. President Donald Trump said a preliminary agreement had been signed. Details, however, have not been made public and both the U.S. and Iran said a permanent truce is yet to be negotiated.
Middle East crude benchmark Dubai’s premium to swaps returned to pre-war levels of $2.06 per barrel on Monday. That compares with an all-time high of more than $60 in March after the war disrupted supplies.
NAPHTHA FLIPS TO CONTANGO
Producers such as the United Arab Emirates and Kuwait have also been offering prompt cargoes this month, weighing on crude and naphtha markets.
Asia’s naphtha market flipped to contango on Monday while refining margins for the petrochemical feedstock have dropped about 90% to around $45 a metric ton over Brent crude. That is the lowest level since November 2023 and compares with a record $248 on March 31.
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In a contango structure, prompt prices trade below those for future delivery, indicating ample near-term supply.
The resumption of UAE supplies via ship-to-ship transfers has also eased concerns over early-July cargo availability.
About 7 million barrels of naphtha loaded on vessels which remain stuck inside the Strait could add to Asian volumes, consultancy Energy Aspects estimated in its June outlook.
DIESEL, JET FUEL MARGINS
Cash premiums for diesel and jet fuel in Asia dropped back to pre-war levels late last week on expectations of ample regional supplies in July and August.
Northeast Asian exporters ramped up spot sales of July shipments for these fuels in the past two weeks, regional trade sources say, with shipbroking fixtures showing May exports from South Korean refiners almost at pre-war levels.
Diesel’s premium was at $2.65 a barrel on Monday, while jet fuel’s premium was at $1.40.
Similarly, residual fuels have also weakened with high-sulphur fuel oil (HSFO) logging steeper declines than very-low-sulphur fuel oil (VLSFO) as the market looked towards the resumption of shipments from top HSFO suppliers like Iraq.
The July-August spread for 380-cst HSFO narrowed to $3-$4 a ton in backwardation, after breaching a record of $90 in March. Prompt prices are higher than future months in a backwardated market.
GASOLINE, DIESEL, JET MARGINS REMAIN STRONG
While refining margins for transportation fuels have also fallen, they remain much higher than pre-war levels due to tight inventories and concerns about how quickly Middle Eastern supplies can resume through the Strait of Hormuz.
“As war-risk premiums for transiting the waterway remain elevated, crude and refined product prices will remain temporarily supported until there are signs of a safe passage through the strait,” said Xavier Tang, senior market analyst at Vortexa.
Asian gasoline margins have tumbled about 35% to around $24 a barrel over Brent crude from a record high of $43 in March but that is still three times higher than pre-war levels.
Diesel and jet margins are at about $40 a barrel, nearly double levels seen before the war. ,
“Since a lot (with the deal) can still go wrong, the risk is now presumably very much skewed to price upside,” said Neil Crosby, senior oil analyst at Sparta Commodities.
Oil product stocks in Asia’s key trading hub Singapore fell to their lowest in nearly 13 years, data showed last week, as most Middle Eastern shipments remained curtailed due to the conflict.
Reporting by Jeslyn Lerh, Mohi Narayan, Trixie Yap, Additional reporting by Siyi Liu; Editing by Florence Tan and Edwina Gibbs
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