Brent/Dubai cash spread inverts following OPEC+ cuts
Quantum Commodity Intelligence - The Brent/Dubai cash spread inverted for the first time in over six months Thursday, as OPEC+ cuts and a firmer demand outlook for Asia than Europe lifted the Middle East benchmark above its North Sea counterpart.
The Brent/Dubai cash spread for June cargoes was assessed by Quantum at -$0.08/b, the first negative print since late September.
Brent/Dubai was already in decline since the start of the year, with the spot spread at over $4/b in early January, but lingering fears over recession in the West coupled with a glut of light sweet crude has gradually eroded the premium for Brent.
The front spread averaged around +$0.80/b last month, but the surprise decision at the start of the month that a number of OPEC+ members will cut production from May has been enough to flip the closely-watched spread.
Of the approximate 1.15 million bpd reductions, around 1 million bpd will come from Middle East Gulf producers, with close to 100% compliance expected from Saudi Arabia, UAE, Kuwait, Iraq and Oman.
On the demand side, China remains the primary driver, underlined by Thursday's OPEC report forecasting that China's oil demand is now expected to average 15.61 million bpd this year, up by 760,000 bpd year-on-year.
By contrast, crude demand growth has been adjusted lower for "all four quarters of 2023, to reflect the most recently received data for first quarter of 2023 and account for an anticipated decline in economic activity in OECD Americas and OECD Europe," said OPEC.
The organisation trimmed its forecast for Europe and the US by a combined 130,000 bpd from its previous report in March, pushing Europe into negative growth for 2023 for the first time since the pandemic.
The narrowing spread between the two crude benchmarks has also coincided with the sharp reversal in Asian HSFO (3.5%-sulfur) cracks, which reached an 11-month high of around Brent -$10/b this week, underpinning sour-crude values.
Forward
The forward curve also indicates the Brent/Dubai is set to stay relatively narrow with the Jul23 spread at $0.20/b and $0.80/b for Aug22, before moving back above $1/b.
Meanwhile, the Brent/Dubai EFS was valued Thursday at around $2.05/b for the Jun23 contract and $2.55/b for Aug23, although the EFS includes two months of the Dubai time structure.
Both the Brent/Dubai cash spread and EFS are used by Asian refiners in comparing Dubai-related crude oil versus grades pricing against the North Sea Brent benchmark and are also used to convert Dubai flat-price exposure to the more-liquid Brent futures contract.
The Dubai 'basket' includes medium sour grades Dubai, Oman, Upper Zakum and Al Shaheen, along with light sweet Murban.
Although Asian refiners import barrels from all over the world a significant number of refineries, particularly older plants, use Middle East sour barrels as baseload crude and have less flexibility than newer, more-complex refineries.
