Signs are emerging of a shift under way in the oil market, with demand weakening in Asia and picking up in the West, just as supplies of Iranian crude oil have climbed.
That marks a reversal from 2020, when a bounceback in economic activity in China and India powered a recovery in crude prices after the blow dealt by Covid-19. Now, Chinese imports have slowed while a worsening epidemic in India threatens to hit demand in the world’s third-largest consumer of oil.
Demand in the U.S. and Europe, on the other hand, is expected to rally as vaccination efforts gather pace and restrictions on movement are eased.
At the same time, supplies of sour Middle Eastern crude oils favored by refiners in Asia are on the rise. The Organization of the Petroleum Exporting Countries has agreed to boost production to meet a pickup in global demand, while Iranian oil output has jumped since the fall.
ly and demand in different regions by curtailing the price growth for sour Dubai crude, which is used as a reference for exports from the Middle East. Brent, the benchmark for a basket of light, sweet crudes produced in Europe’s North Sea, has fetched a large premium over the Dubai benchmark in recent months. So far in April, Brent has cost $3.03 a barrel more on average, the highest monthly premium since November 2019, according to S&P Global Platts.
That is a turnaround from last year. Dubai rose to a rare premium over Brent in the spring of 2020, when a collapse in demand pushed U.S. crude prices below zero, and Brent to less than $20 a barrel. It did so again in the fall, when demand recovered faster in Asia than in Western countries experiencing stop-start lockdowns.
This year, Brent has climbed 25% to almost $65 a barrel. Dubai hasn’t risen as fast: Front-month prices are up 22% at $62.21 a barrel, according to Platts.
The gap between Brent and Dubai prices plays an important role in directing flows of crude around the world. When Brent is relatively expensive, Asian refiners are likely to buy more crude from the Middle East, according to John Morley, associate editorial pricing director at Platts. Dubai-linked crudes could flow even farther afield to destinations such as the U.S. West Coast, he said.
Iran pumped 2.3 million barrels a day in March, according to the International Energy Agency, its highest production level since the Trump administration embargoed Iranian oil sales in May 2019.
More oil is already flowing out of the Middle East. Loadings of crude onto vessels in the region have risen to 16.8 million barrels a day, from 16.1 million barrels a day in March, according to data and analytics firm Kpler.