Brent/Dubai cash surges to 5-mo high as Europe scrambles for crude
Quantum Commodity Intelligence - The Brent/Dubai cash spread raced to a fresh five-month high Wednesday as European refiners scramble to secure replacement barrels ahead of looming sanctions, while sluggish demand in Asia and increased competition from Russian barrels has weighed on East of Suez markets.
Quantum assessed the Brent/Dubai cash spread for January at $5.95/b on 16 November at the 1630 Singapore market close, the widest spread since late May when the then front-line Jul22 spread briefly topped $7/b.
On an outright basis, Dubai cash for January delivery was assessed at $88.04/b, while Brent was valued at $93.99/b.
The widening spread marks a significant turnaround, as Brent/Dubai trading during September regularly posted negative values while averaging less than $1/b in the first half of October.
Most European crude, including in the Mediterranean, is priced against Dated Brent, while the majority of Middle East crude moving to Asia is priced against Dubai or off a Dubai/Oman formula.
Russia
The IEA this week said Russian oil output is set to fall 1.4 million bpd next year after the EU ban on seaborne exports comes into effect for crude next month, which analysts say will have a far greater impact on Europe.
But for now, Russia has largely mainlined production levels, diverting cargoes from its core European customer base to Asia and competing with Saudi Arabia for the title of the largest supplier to China and India.
This has distorted prices to the upside in favour of Europe, although Middle East suppliers are set to step up Westbound shipments in a broader reset of crude oil flows.
Russian Urals crude is classified as a medium sour crude with the closest quality matches typically found in the Middle East, although heavier barrels such as Iraq's Basrah Medium are being sought and blended with lighter grades to create a Urals lookalike.
The relative fall in Dubai values comes despite the headline OPEC+ production cut of 2 million bpd, of which the Middle East will make almost all of the actual 1 million bpd cuts for November and beyond.
The excess supply of crude into Asia has also seen a sharp contraction in the Dubai market structure with the prompt M1/M3 spread (Jan23/Mar23) valued Wednesday at a fresh six-month low of $2.40/b, down $0.20/b on the day, while the one-year curve was hovering around $8/b, the lowest since January.
