Brent/Dubai crude spread narrows to 3-week low with Middle East supply cuts in focus

Singapore — Dubai crude futures' discount to ICE Brent futures narrowed to a 3-week low as global oil markets placed greater emphasis on the likelihood of fresh production cuts for Middle East crude, instead of sluggish crude demand amid the spread of the coronavirus or COVID-19.

The April Brent/Dubai Exchange of Futures for Swaps spread was assessed at 90 cents/b at the 0830 GMT close of Asian trading Monday, and it narrowed further Tuesday morning during intraday trading, with the level pegged at 81 cents/b at 11 am (0300 GMT) in Singapore.

The spread was last narrower at 73 cents/b on February 7, and prior to that it was last lower on March 18, 2019, at 68 cents/b, according to S&P Global Platts data.

The EFS is a key spread tracked by oil market participants to gauge trading flows between Europe and Asia, and between Brent-linked and Dubai-linked crude. A narrower EFS implies more strength for high sulfur Middle East grades priced against Platts front-month Dubai crude assessments, relative to those priced against Brent.

Although the spread has maintained a narrower-than-typical range under $2/b since February, it has slid under $1/b only a handful of times since then.

Crude market participants in Asia said the latest inflexion could be a double whammy from Brent prices bearing the brunt of the downside from the COVID-19-led demand impact, while Dubai prices were ticking up as momentum builds toward this week's OPEC+ meeting.

Latest media reports indicate that key members of the producer-alliance, which are slated to discuss a fresh round of supply cuts at the upcoming March 5-6 meeting, could push up to 1 million b/d of crude oil off the market, from the initial 600,000 b/d proposal.

But traders in Asia also warned of the larger fundamental picture, which remains bearish. They were unsure if the strength at the Dubai end of the EFS spread would continue to hold beyond the OPEC+ meeting this week, they told Platts.