Brent/Dubai EFS holds around 2-year highs of $4.30/b on steep Dubai backwardation
Quantum Commodity Intelligence – The spat between Saudi Arabia and the UAE has led to a sharp reversal in Middle East crude oil prices but so far has had little impact on the Brent/Dubai EFS (exchange of futures for swap), according to Quantum data Thursday.
The front-line September EFS was trading around $4.30/b, consolidating the two-year highs seen over the week, and up around $0.40/b from late-June 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.
A wider spread typically makes Middle East crude and other grades pricing against Dubai (or Dubai/Oman) more attractive to Asian refiners, while Dated-Brent related crudes such as those from the North Sea or West Africa become more expensive.
Dubai cash for September delivery was assessed $70.59/b on July 8 (1630 Singapore time), down $2.66/b from Wednesday, a fall 3.6% on the day and a 7% drop in two days.
At same time, cash Brent (BFOE) for September was assessed at $72.41/b, down $2.62/b on the day. Likewise, cash Brent has tumbled around 7% in the last two sessions.
Structure
The firm Brent/Dubai EFS is largely a function of the market structure with the Sep/Oct Dubai backwardation at around $1.40/b, while Oct/Nov has been trading at around $1.00/b.
Effectively the EFS is a measure of September-loading Brent against November-loading Middle East medium sour crude, so includes two months of market structure.
Such a dramatic price collapse would usually lead to a narrowing of intermonth spreads, but while the OPEC standoff remains in place oil production is set to remain unchanged.
Saudi Arabia and UAE remain deadlocked on the deal to add 400,000 bpd in August and a total of 2 million barrels by year end.
Some analysts have warned of an impending market share/price war, but the structure suggests the market is factoring in a continued tight supply/demand scenario, rather than a flood of oil coming into the market.
On a like-for-like basis, the September cash Brent/Dubai spread was pegged at $1.82/b, largely unchanged from Tuesday when flat prices hit near three-year peaks. Further along the curve the has been some widening, but that is part of a trend in place prior to the OPEC stand-off.
Meanwhile, Abu Dhabi's flagship Murban crude is trading at strong premiums of at least $1/b to Dubai and DME Oman - again suggesting there is no imminent rise in UAE production.
Murban however is more closely aligned to North Sea in quality terms and Thursday Murban trading on ICE Futures Abu Dhabi was around $0.75/b under Brent, little changed from July 1 when OPEC+ talks started.
