Rising Oil Supplies Lead to Narrowed Price Structure and Falling Premiums: What It Means for Investors and Businesses in Oman
LONDON: Premiums for immediate delivery of key global oil benchmarks are declining relative to prices for future months, driven by increased production from the Middle East, Latin America, and Europe, alongside the conclusion of peak summer demand, according to traders and analysts on Thursday.
Reduced concerns over potential new US sanctions against Russia, which could disrupt oil supplies, are also exerting downward pressure on oil prices.
Since the start of August, six-month time spreads for Brent, US West Texas Intermediate (WTI), and Middle Eastern Dubai crude futures have narrowed by more than $1 per barrel in backwardation. Backwardation is a market condition where prompt delivery prices exceed those for future months, signaling tight supply; a narrowing spread suggests expectations of rising supply levels.
“Brent and Dubai time spreads are easing primarily due to anticipated incremental OPEC+ output increases from September and eased fears of Russian supply disruptions following consistent flows through the Baltic and Black Seas,” said Shohruh Zukhritdinov, a Dubai-based oil trader. He added that while US crude supply remains stable, refinery activity is expected to decrease gradually as the shoulder season approaches, which will reduce tightness in prompt supply.
The upcoming meeting between US President Donald Trump and Russian President Vladimir Putin in Alaska on Friday aims to negotiate a ceasefire deal in Ukraine. Citi analysts indicated that Brent crude could drop to the low $60s per barrel if a US-Russia agreement is reached.
Rising Supply and End of Peak Demand
Market participants are preparing for increased supplies after OPEC+ members agreed to boost production in September, coinciding with new output from non-OPEC producers such as Guyana, Brazil, and Norway. Additionally, the end of the Northern Hemisphere’s peak summer demand is cooling previously strong diesel margins in Europe and lowering crude consumption for power generation in Saudi Arabia.
“We observed significant selling during the period, reflecting downward revisions in crude demand expectations as refinery margins weaken and gasoil/diesel crack spreads collapse,” said Harry Tchilinguirian, Group Head of Research at Onyx Capital Group, referring to physical trading conditions in the North Sea.
Separately, Danish wind farm developer Orsted announced plans on Monday for a $9.4 billion rights issue, citing challenges in the US offshore wind sector.
“With seasonal demand waning and uncertainties over China’s ability to maintain elevated imports for stockpiling, the question remains: where will the additional Saudi barrels be absorbed?” Tchilinguirian added.
Spot premiums for Middle East crude benchmarks Dubai and Oman have hovered at their lowest levels in over a month for October-loading cargoes. Despite this, Dubai remains relatively stronger than Brent, keeping the price differential between these benchmarks narrow and permitting Atlantic Basin supplies to be redirected towards Asia.
Asian refiners have already secured millions of barrels from the United States, Africa, and Europe for September and October delivery.
Neil Crosby, analyst at Sparta Commodities, noted ongoing uncertainty surrounding Russian supply, as India—the world’s third-largest oil importer—has recently purchased spot cargoes to substitute for Russian oil. “Some Urals crude will be diverted to China, but the situation remains unresolved, with continuing risks regarding unsellable Russian oil making Exchange of Futures for Swaps (EFS) trades even more complex than usual,” he said.
— رويترز
تحليل خاص من عمانت | تصفح سوق عُمان
The recent softening of global oil premiums amid rising Middle Eastern output and easing geopolitical tensions signals a shift toward increased supply and moderating demand. For Omani businesses, this environment presents both a challenge of lower oil revenue potential and an opportunity to diversify into alternative energy and downstream sectors. Smart investors should closely monitor OPEC+ production decisions and geopolitical developments, positioning for long-term resilience beyond peak oil demand cycles.
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