Dubai crude soars to 3-month high as Brent/Dubai spreads crunch

Quantum Commodity Intelligence - Benchmark Dubai prices rallied to three-month highs Tuesday on growing optimism for Middle East crude, while Dubai has also made strong gains versus Brent this month.

Dubai cash for April delivery was assessed by Quantum at $84.88/b on 14 February (1630 Singapore time) after registering six consecutive gains to take outright prices to the highest level since mid-November, having reached a low of $71.81/b in mid-December.

Crude oil prices in Asia have found broad support since the start of the year on growing optimism of a speedy recovery in demand after Beijing lifted Covid restrictions in late 2022.  

Asian crude prices have also gained sharply on North Sea Brent since Covid restrictions were rolled back, despite facing competition from heavily-discounted Russian barrels displaced from Europe.

At the start of December, the Brent/Dubai cash spread was pegged at around $5.50/b, but according to Quantum data has since crunched to just above $1/b this week.

In addition to increased consumer consumption in China and across Asia, crude demand East of Suez has also been boosted by new refinery start-ups.

PetroChina is preparing to start its new 400,000 bpd Jieyang refinery and the Shenghong Petrochemical plant at over 300,000 bpd. Kuwait's 615,000 bpd Al-Zour has been ramping up in the Middle East since Q4.

Russia's announcement it will cut output by 500,000 bpd in March has also helped narrow the spread this week, stemming the flow of Urals crude to India.

Likewise, the Brent/Dubai EFS has also moved sharply lower over the same timeframe, pegged close to $7/b in early December to below $4/b in recent weeks, which has opened arbitrage opportunities for Atlantic Basin cargoes into Asia.

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.

Medium sour crudes have also fared better than light sweet grades such as Brent, as  refining margins for high sulfur fuel oil have crept to their highest level in nine weeks and are within touching distance of their highest levels since August.