Middle Eastern Oil Prices Surge on Strong Asian Demand Amid Supply Constraints

The price of certain Middle Eastern oil grades strengthened in the final week of December, driven by robust demand from Asian refiners, as Iranian and Russian oil supplies became more limited and expensive, Bloomberg reports.

Oman and Dubai crude surged to a rare premium over Brent, the global benchmark, while Murban futures outperformed Brent in the last two months of the year. This price increase was fueled by heightened demand from China and India, as well as active bidding on the Platts window by companies like TotalEnergies SE, according to traders.

While the market has started more quietly in January, traders anticipate that bidding could intensify throughout the month. They are also awaiting official selling prices from major Middle Eastern producers such as Saudi Aramco, which will set the tone for purchasing.

The recent strength in Middle Eastern oil prices is partly attributable to disruptions in Iranian and Russian oil flows due to broadening sanctions from the US and Europe. Additionally, Russia has faced increased pressure to adhere to OPEC+ production goals.

Oman and Murban prices have experienced significant fluctuations in the final sessions of each month due to low trading volumes. However, the recent upward trend in these prices suggests an underlying market strength that was present before these fluctuations. In late December, Oman futures on the Gulf Mercantile Exchange and partial lots of Dubai crude were priced at $1 or more over Brent, a significant shift from their typical discount to the lighter and sweeter benchmark oil.

The impact of sanctions and production constraints is also evident in the Russian market. Cargoes of Russian ESPO to China have recently traded at a premium of $2 a barrel to Brent on a delivered basis, up from a premium of 80 cents to $1.50 in the previous two months. Indian processors have also expressed concerns about fewer offers for Russian Urals, leading at least one refiner to seek alternative sources.

The availability of Iranian supplies to Chinese buyers has also decreased in recent weeks. Iranian Light cargoes are now priced at a discount of $1.50 a barrel to Brent, compared with a discount of $2 to $3 in late November.