Dubai crude bulls seen on top as Brent/Dubai spread inverts
Quantum Commodity Intelligence – The huge Dubai crude play that has pitted some of the world's oil trading giants against each this month is entering its final stage, with those backing the relative strength of the Middle East benchmark seen coming out on top, at least as it stands.
The chief indicator is the value of Dubai soaring above Brent, with Quantum's Brent/Dubai cash spread for balance of June (for August loading) assessed Wednesday at minus $1.40/b, with Brent now pricing at the largest discount on record to medium sour barrels outside of expiry-day anomalies.
Other indicators pointing to a relatively firm Dubai include the M1/M3 (Aug23/Oct23) structure pricing at around +$1.50/b, whereas the corresponding Brent timespread has moved into contango.
Over 1300 partials have traded so far this month in the Platts-operated Dubai/Oman crude oil trading window, resulting in some 65 August-delivery convergences, made up of 54 Oman and 11 Upper Zakum. The total also includes convergences from trading Oman partials.
With just one more Dubai trading window to come after Thursday's Singapore holiday, market watchers expect total deliveries to top out at around 70 cargoes, comfortably the second highest on record but falling just short of the all-time high of 78 Dubai convergences in August 2015.
China's Unipec has been the primary seller, with support from Vitol, while PetroChina heads the list of buyers, closely followed by Totsa.
Behind the 'window' volume is around 175 million barrels of Dubai-linked derivatives, according to data published by ICE, far exceeding the 27.5 million barrels so far delivered via the Platts MOC window.
Exchange data as of 26 June revealed there were still over 101,000 lots of balance-June Dubai (DBI) open interest - one lot is equal to 1,000 barrels – while the Brent/Dubai contract (BOD) still had nearly 74,000 lots of open interest. Dubai positions are settled against the Platts Dubai print.
Fundamentals
Analysts said there had been a major shift in favour of medium sour crudes this month, not least because of Saudi's 1 million bpd output reduction in July, which could be extended into August.
Lighter barrels, on the other hand, have come under pressure following a slump in naphtha cracks, with Asian refiners said to be cutting flows of Atlantic basin light crudes despite the crunch in the Brent/Dubai EFS, which is used for calculating arbitrage flows.
The notional Aug23 EFS at one point tipped into negative territory on Wednesday for the first time since 2020, while the Sep23 EFS was trading at $0.50-$60/b on the Asia market close.
In turn, the WTI Midland export grade has largely been setting the Dated Brent print this month, which is weighing on the entire Brent complex.
Brent weakness has also spilled over into next month, with the Sep23 Brent/Dubai cash trading negative Wednesday.
