Dubai M1/M3 spread above $2/b as August cash surges to 26-month high  

London (Quantum Commodity Intelligence) –The Dubai cash first-line versus third line (August vs October) spread widened Monday to more than $2 per barrel for the first time since January 2020 on Monday, on expectations of surging demand and tight supplies during the second half of the year.

Front-line August Dubai traded above $72/b for the first time since April 2019, while Aug/Sept was assessed +$1.20/b and Sept/Oct at +$0.90/b as refiners and traders scramble for physical cargoes to meet the expected demand surge later in the year.

Both the IEA and OPEC published bullish reports last week anticipating a sharp upturn in consumption as global vaccination programs are rolled out, while Goldman Sachs predicted $80/b Brent in the third quarter.

Brent/Dubai August cash was assessed at $1.43/b Monday.

The M1 vs M3 spread is keenly watched by producers, refiners and traders, as the underlying spread plays a major role in setting spot differentials in the physical market with most oil East of Suez priced on a month-loading basis.

For instance, August-loading cargoes sold against Dubai will price against front-line Dubai during the month of August, which is October -- so the premium will reflect the $2.10/b backwardation between August and October.

The August Dubai swap reflects the Dubai basket grades loading in October.

Premiums soar

Upper Zakum is currently at parity to cash Dubai, setting the Dubai quote as the lowest of the 'Dubai basket' grades of Dubai, Oman, Upper Zakum, Al Shaheen and Murban, but spot premiums were quoted in excess of $2/b over Dubai swaps. 

Premiums for distillate-rich lighter crudes have also been moving sharply higher with Abu Dhabi's Murban valued at around Dubai swaps +$3/b, while Russian Sokol was heard changing hands at close to Dubai swaps +$4/b.

The Brent/Dubai EFS (exchange of futures for swaps) has also been impacted by the wider Dubai backwardation, since the EFS also includes the two months of market structure.

The front-month August EFS was assessed at $3.52/b Monday, the widest spread since late April.

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.