Among the world's three major crude benchmarks, prices for Dubai crude, which represents Middle Eastern oil, and West Texas Intermediate (WTI), which represents U.S. oil, flipped after speculation grew that the United States and Iran were nearing a cease-fire, pushing WTI above Dubai. Dubai crude fell on hopes the Strait of Hormuz could reopen. That is expected to benefit Korean refiners, which import large volumes of Middle Eastern crude priced off Dubai.
According to Opinet, the price information system of the Korea National Oil Corporation (KNOC), the Dubai-WTI price inversion occurred once on Apr. 29 (Dubai $106.49 a barrel, WTI $106.88) after U.S. and Israeli strikes on Iran, and has continued since the 12th (Dubai $83.18, WTI $84.88).
As of the most recent reading on the 18th, the price gap between Dubai ($73.09) and WTI ($76.60) was $3.51 per barrel. That is the second-largest gap in the last five years since 2022 when WTI outpaced Dubai. The widest premium for WTI over Dubai was on June 13, 2022, when the spread was $5.3.
WTI overtook Dubai in part because refiners in Asia and Europe increased purchases of U.S. crude to secure alternative supplies to Middle Eastern oil after the U.S.-Iran war. Reuters, citing vessel-tracking data analyzed by energy analytics corporations such as Kpler, reported that U.S. crude exports in May hit a record high at an average of 5.6 million barrels per day. That pushed the U.S. monthly average crude exports past the previous record of 5.2 million barrels per day set in April.
Of U.S. crude exports in May, shipments to Asia reached 2.45 million barrels per day and to Europe 2.4 million barrels per day, both at record highs. In particular, Japan, which has traditionally been highly dependent on Middle Eastern crude, imported 808,000 barrels per day of U.S. crude, the most among Asian countries. That was up 32% from April.
The Dubai-WTI price inversion is expected to ease cost pressures for Korean refiners. The refining industry views it as normal for Dubai, a heavier crude of slightly lower quality than light WTI, to be cheaper than WTI. But as the United States ramped up shale oil production and output cuts centered on the Organization of the Petroleum Exporting Countries (OPEC) took hold, Dubai traded above WTI, burdening Korean refiners with higher costs. Until the Strait of Hormuz was blocked, Korea's four major refiners relied on the Middle East for about 70% of their crude intake. If the price of Dubai, the benchmark for Middle Eastern crude, falls, materials and supplies import expense declines.
A refining industry official said, "On expectations that the Strait of Hormuz will reopen, Dubai prices fell and ultimately dropped below WTI," adding, "Dubai supply is still not smooth and there is almost no volume trading in the market, so the price decline does not mean much, but the very fact that Dubai is getting cheaper is a good sign."