The premium for Middle Eastern crude oil has fallen to its lowest level since late July as stronger export flows and improved cargo availability ease supply pressures despite persistently high tanker freight costs.
The Oman crude premium over Dubai crude, a key indicator of physical oil market strength in the Middle East, dropped to $4.22 per barrel this week, according to General Index data cited by Bloomberg.
The decline marks a sharp reversal from mid-September, when the premium reached about $30 per barrel, reflecting renewed supply concerns as hostilities in the region intensified.
The Oman-Dubai price difference had surged to as high as $65 per barrel in March when disruptions in the Strait of Hormuz brought crude shipments from the Middle East close to a standstill.
The premium subsequently fell into negative territory for three weeks spanning mid-June and early July, when the United States and Iran were pursuing negotiations. It widened again in August and rose sharply in September as hostilities resumed.
However, Middle Eastern producers have increased efforts to move crude through the Strait of Hormuz, including shuttle shipments and ship-to-ship (STS) transfers in the Gulf of Oman. The resulting recovery in exports has increased the volume of crude available to buyers, particularly in the spot market.
Tanker-tracking services have reported that crude flows from the region have recovered to, and in some estimates exceeded, levels recorded before the war. The improved availability has reduced competition for immediately deliverable cargoes, weakening the premium buyers are willing to pay for Oman crude relative to Dubai.
Despite the recovery in shipments, moving oil out of the region remains expensive. Tanker freight rates have climbed to record levels amid a shortage of available vessels, adding to the cost of transporting crude to international markets.
Ship-to-ship transfers outside the Strait of Hormuz have also kept large tankers occupied for extended periods as they wait to load or receive cargoes. This has reduced the availability of very large crude carriers (VLCCs) for other major routes, including shipments from the U.S. Gulf Coast to Asia.
The contrasting trends show that improved crude availability does not necessarily mean transportation costs have eased. While increased exports are putting downward pressure on Middle Eastern crude premiums, limited tanker capacity and expensive freight continue to complicate global oil trade.
The Oman-Dubai differential will remain an important indicator of how changes in regional supply affect physical crude prices, even as shipping constraints continue to influence the final cost of delivered oil.