Brent/Dubai cash spread narrows to 8-month low on Dubai strength
Quantum Commodity Intelligence – The Brent/Dubai cash spread and the Brent/Dubai EFS (ICE Brent versus cash Dubai) have moved sharply lower during August, with both indicators at multi-month lows, according to market data Tuesday.
The Brent/Dubai cash spread for October was assessed by Quantum at $0.66/b, down from around $2/b in late July and the lowest spread since January of this year.
Meanwhile, the October Brent/Dubai EFS dipped below $3/b this week for the first time since late May, assessed Tuesday at $2.94/b having reached two-year highs of around $4.30/b during the first-half of July following the spat between OPEC+ members over baseline production levels.
The EFS is used as a key metric in comparing Dubai-related crude oil versus grades pricing against the North Sea Brent benchmark.
The spread also reflects North Sea light sweet crude against medium sour crude in Asia and is a measure of the west/east spread.
October strength
The Dubai strength is largely concentrated in October with the October/November cash spread riding high at close to $1.50/b this month – in contrast to the Brent front-spread backwardation that has narrowed to under $0.40/b this week.
November Brent/Dubai cash is around $1.75/b, while further down the curve the spread is comfortably above $2/b and rising to over $2.50/b in Q1 2022.
The Dubai forward structure has been firmly backwardated for much of the year with OPEC+ supply management keeping mostly medium sour and heavy barrels off the market.
The producer group has agreed to pump an additional 2 million barrels per day by the end of 2021, but the Dubai structure has largely held firm as most analysts predict a supply shortfall for the remainder of the year.
But the strength of October Dubai is seen as surprising by some market watchers, with China's zero-Covid policy and subsequent mobility restrictions seen wiping out around 1 million bpd of consumption for at least the short term.
So far Dubai has resisted downwards pressures, but crude traders will be watching if the October strength is maintained for the rest of the month.
