Brent/Dubai EFS trading above $3.30/b as Dubai backwardation widens
London (Quantum Commodity Intelligence) – The Brent/Dubai EFS (exchange of futures for swaps), a key metric in comparing Dubai-related crude oil against grades pricing against the North Sea Brent benchmark, has widened by around $0.40/b since the end of May to consolidate at around $3.40/b, according to Quantum data.
A wider spread typically makes Middle East crude and other grades pricing against Dubai (or Dubai/Oman) more attractive to Asian refiners, while crude from the North Sea or West Africa becomes more expensive.
The August EFS has been trading at $3.30-$3.35/b for the last four sessions, compared to around $2.90/b on the July EFS at the end of May.
However, the Brent/Dubai cash spread has narrowed since the end of May from over $2/b to just above $1.50/b on Monday, as talks to lift Iranian sanctions falter.
A lifting of oil sanctions against Iran would have a greater impact on Middle East grades due to quality and geographical overlaps.
This also makes Dubai-linked grades more expensive, so refiners will be feeling the pinch on cargo premiums regardless of grade origin.
Market structure
The widening of the Brent/Dubai EFS is largely a function of the market structure with the Aug/Sep Dubai backwardation widening to more than $1/b, while Sep/Oct has been trading at around $0.70/b.
The August EFS is a measure of August Brent futures against Dubai swaps pricing in August.
As the August swap is pricing against October cash Dubai, the EFS includes two months of Dubai market structure – which is currently the highest level since January 2020.
Premiums for Dubai pricing grades, which trade against the Dubai swap, have also strengthened due to the backwardation with medium sour crudes such as Oman and Basrah Light for August loading seen at above Dubai swaps +$2.00/b.
The Brent/Dubai EFS reached a then 17-month high of $3.74/b in late April, primarily driven by a record-low North Sea loading program for June and a shortfall of barrels from Libya after a force majeure was declared at one of its key export terminals.
ICE Brent futures backwardation for Aug/Oct was around +$0.95/b Monday.
