Oil Markets in the Middle East Decline Due to Optimism About Supply Increases

SadaNews - Oil markets in the Middle East have declined after the agreement between the United States and Iran to reopen the Strait of Hormuz boosted optimism about increased flows from the oil-rich region.

The futures curve for benchmark crude oils, such as "Dubai" and "Murban", has shifted to a "contango" state for the first time since the beginning of the war. This market pattern, where near-term contracts trade at a discount to longer-term contracts, indicates a decline in concerns about supply shortages.

In addition to expectations of increased barrels, the Abu Dhabi National Oil Company (ADNOC) issued a tender earlier this week to sell grades sourced from within the Arabian Gulf, for loading in June or July.

Pressure on Oil Prices

Theoretically, the resumption of flows through Hormuz means an increase in the volume of barrels, which will put pressure on prices. There are also millions of barrels stored on ships within the Arabian Gulf, which will add to any increase in production from producers in the region.

However, ship owners and traders are still awaiting clarity on what the agreement to reopen Hormuz will practically mean, creating uncertainty about how quickly flows will return to the market. Yet, even before the agreement, increasing amounts of oil were seeping through the waterway, with one industry source estimating the flows at 4 million barrels per day.

The spread between the July and August contracts for Dubai crude was 6 cents per barrel in a "contango" state on Tuesday. This is the weakest level since late January, compared to a peak during trading that reached over $13 in the opposite structure known as "backwardation" in March. The spread for the near contract of Murban, the main crude in Abu Dhabi, reached 21 cents in a "contango" state on Tuesday, after peaking during trading at over $30 in the "backwardation" state in March.