Brent/Dubai spread narrows as supply uncertainty lingers

Singapore — Benchmark Dubai crude's discount to ICE Brent futures narrowed Tuesday morning, even as backwardation along the Dubai futures curve softened slightly with the initial knee jerk reaction from the Middle East conflict beginning to wear off.

However, market participants in Asia still seemed nervous and hesitant about the ongoing political situation, which could impact prompt or forward supplies, they told S&P Global Platts Tuesday morning.

"Many unknown things around Middle East [crude supply]," a crude trader in Singapore said. "Freight is high, [so] premiums could be strong," the trader added.

Prior to the event, the Asian market had largely been expecting a softer month for spot market differentials, with premiums falling sharply in December's spot market to deep discounts ahead of the kickoff for trading in January.

Now, traders will reassess prices paid for Middle East sour crude grades scheduled to load over March and flow to Asia, with the additional risk premium factored in.

A general rise in freight rates globally as a knock-on effect of the Middle East situation could actually favor grades from that region, traders said, as end-users would prefer a shorter journey and a lower bottom line cost overall for their cargoes.

The March Brent/Dubai Exchange of Futures for Swaps spread was pegged at $2.37/b at 11 am in Singapore on Tuesday. It narrowed from its 4:30 pm assessment at $2.54/b on Monday evening in Singapore (0830 GMT).

A narrowing Brent/Dubai EFS would indicate relative tightening of the Middle East sour crude complex compared to North Sea crudes.

Dubai intermonth spreads softened, however, with the February/March timespread pegged at 99 cents/b Tuesday morning, down from $1.03/b assessed Monday.

The March/April spread also narrowed to 98 cents/b at 11 am, from a backwardation of $1.03/b at 4:30 pm on Monday.

-- Eesha Muneeb, eesha.muneeb@spglobal.com

-- Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com