Brent/Dubai EFS at fresh multi-year highs as Brent surges, Dubai structure wider
Quantum Commodity Intelligence - The Brent/Dubai EFS rallied to fresh multi-year highs Thursday following the oil price spike as Russia launched its invasion of Ukraine, sparking fears that oil exports could be impacted.
The April EFS, or exchange of futures for swap, was trading at $8.50/b at the Asia market on close (1630 Singapore), but at one point surged above $9/b before settling around $8.90/b in late Asian hours.
The EFS is a key metric in comparing Dubai-related crude oil versus grades pricing against the North Sea Brent benchmark, and is used in arbitrage calculations for Asian imports.
The spread reflects North Sea light sweet crude versus medium sour crude in the Middle East, and is also used to convert Dubai flat-price exposure to the more-liquid Brent futures contract.
The EFS had strengthened by around $3/b since last Friday's close, as Brent prices outpaced the Middle East this week, while the Dubai market structure has strengthened further.
The widening of the Brent/Dubai EFS is largely a function of the Brent/Dubai cash spread and the M1/M3 Dubai market structure, which have both rallied sharply this week.
The Brent/Dubai cash spread for April loading barrels was assessed by Quantum Thursday at multi-year highs $4.65/b, while the Apil22/Jun22 Dubai backwardation was assessed at $4.14/b
Sources said the EFS is trading at the highest level since the mid-2000s when the Brent/Dubai cash spread traded at double-digits for a brief period.
At the time, the global refining industry lacked enough capacity to process available heavy barrels, which created a glut of heavy crude and a shortage of light barrels.
Meanwhile, backwardation in the Brent futures marker continued to soar Thursday, ahead of Monday's Apr'22 contract expiry.
The front-month Apr'22/May'22 spread was trading $3.50/b at 1345 GMT, while spreads also widened down the curve.
"The difference in price between the front-month forward contract and that due in six months is now more than $10, while the gap between the front-month contract and the contract due in one year's time is almost $18," noted Carsten Fritsch of Commerzbank.
"The market is pricing in a massive tightening of supply," added Fritsch.