Dubai backwardation unwinds and Asian buyers walk away from Saudi crude
The Dubai M1–M3 spread collapses from ~$37 to ~$8/bbl as the war premium fades, but Aramco's lagging formula left July differentials high enough to push China's Saudi intake toward ~600,000 bpd
Summary
The Dubai benchmark's wartime distortion is unwinding fast. The M1–M3 spread , the near-vs-deferred gap that drives Gulf OSP differentials, collapsed from ~$37/bbl in March to ~$13 in April and ~$8 in May as the Hormuz tightness drained out. Because Aramco's formula lags the spread, its Arab Light differential ballooned to ~$20/bbl in April and was still ~$16 in May, pricing Saudi crude out of Asia precisely as cheaper grades returned. Chinese refiners cut Saudi intake from ~1.6m bpd in February toward a projected ~600,000 bpd in June. The mechanism now points the other way: a flatter Dubai curve should drag the July–August differential back toward $7–8, but the buyers have already substituted.
By the numbers
- ~$37 → ~$8/bbl, Dubai M1–M3 spread, March to May 2026.
- ~$20 → ~$16/bbl, Aramco Arab Light differential, April to May (formula lag).
- ~1.6m → ~600,000 bpd, China's Saudi crude intake, February to projected June.
- ~$7–8/bbl, where the differential should reset as the curve flattens.
Why it matters
Aramco's formula, built for slow-moving markets, amplified the war shock: it kept prices high into a collapsing spread and handed market share to rival grades. Rebuilding Asian demand at lower differentials takes time, compounding the revenue squeeze on a kingdom already running a record deficit as OPEC+ adds volume.
What to watch
- Aramco's August Arab Light OSP as the formula catches down to the flatter curve.
- Whether Chinese intake rebounds or stays with substituted grades.
- The Brent–Dubai (EFS) arbitrage steering buyers between Atlantic and Gulf barrels.