Oman crude oil trading in January on the Dubai Mercantile Exchange softened over the course of the month, although most of the losses came during the first half before some support was found and prices rebounded slightly.
The DME March Oman crude contract settled last week at US$103.67 per barrel, down nearly $5 from the closing December price of $108.58.
The monthly average of the DME, which is used by Oman and Dubai to set their official selling price (OSP), was $104.04, down from $107.88 in December and the lowest monthly price since last July.
Most of the losses came in the first half of January on news that Iran would start to curb its nuclear programme, sparking fears that a further easing of sanctions could push more oil into an already comfortably supplied market. Sanctions against the Opec member cut about 1 million barrels per day of Iranian crude exports last year.
“Middle East oil prices for Asian buyers are starting to look too high as a series of bearish indicators start to come into play,” said the Reuters analyst Clyde Russell in his January market analysis. “These include the relatively mild winter in major Asian consumers such as China and Japan, the coming refinery maintenance season in the second quarter, the possibility of the return of Iranian barrels to the market coupled with rising Iraqi output and soft demand growth in top importer China.”
Additionally, market watchers also noted that the United States Federal Reserve’s move to trim its monetary stimulus was likely to have a dampening effect on oil values.
Prices, however, did find some support in the second half of the month, partly on the US cold snap, which increased demand for heating oil and closing the gap between the US West Texas Intermediate benchmark and European Brent – although the US price is still about $10 behind.
Middle East crude generally lost ground to European prices, as the Brent/Oman spread moved to well over $3 a barrel, or up about 50 cents compared with December.
The European market remains relatively depressed on the demand side, leaving room for traders to ship European North Sea crude to Asia. This, in turn, supports Brent prices but has a dampening effect on the Middle East and Asia.
Many analysts expect prices to find support close to current levels in the short to medium term.
Hans van Cleef, an analyst with ABN Amro Group in Amsterdam, increased his forecast for Brent crude this year to an average of $100 a barrel, up $5 from his initial forecast.
Paul Young is the head of energy products at DME
