Oil traders will pay premiums for the annual supply of most grades of Middle East crude in 2024, trade sources said, on concerns over supply from the region after the Israel-Gaza conflict heightened geopolitical tensions.

The annual deals between trading firms purchasing from producers and equity holders of Middle East crude were mostly concluded by the start of this week, nearly a month since the conflict between Israel and Hamas militants broke out, which has sparked fears of a contagion in the region and made global oil prices volatile.

The Middle East accounts for a third of global oil production.

Volatility in oil markets may have driven up prices for some of the cargoes sold in these annual deals, one trader said.

While premiums for most of the grades held steady, some of the Murban and Oman cargoes with 5% operational tolerance had been sold at steep premiums of 30-35 cents a barrel to their respective official selling prices (OSPs), the sources said.

Operational tolerance is the percentage volume that the buyer or the seller could adjust during the loading of the cargo, depending on demand and shipping logistics.

For cargoes with an operational tolerance of 0.2%, Abu Dhabi’s flagship Murban crude are priced at between 10 and 12 cents a barrel to their OSP while Oman was sold at premiums of 4-5 cents a barrel, the sources said.

Another Abu Dhabi light grade Das, with the same operational tolerance level, was traded at premiums between 1 and 7 cents to its OSP, one of the sources said.

Supply of Upper Zakum crude, the medium Abu Dhabi grade, swung between small discounts and small premiums to its OSP for cargoes with 0.2% operational tolerance, the sources said.

Reuters, Florence Tan, November 10, 2023