Brent/Dubai crude futures spread touches new low as OPEC bets on Russia

Singapore — The Brent/Dubai Exchange of Futures for Swaps spread shrank to its narrowest on record during the Asian trading session Friday morning, as market participants pondered the likelihood of Russia approving a new OPEC proposal for an additional 1.5 million b/d of production cuts for the remainder of 2020.

At 11 am in Singapore (0300 GMT), the May EFS was pegged at 15 cents/b, its lowest ever since Platts first began publishing the assessment back in August 2011.

The previous low for the spread was 21 cents/b, assessed on February 14, 2019 amid US sanctions on Venezuela, which clamped down supply of high sulfur crude oil from the South American nation.

The EFS was assessed at 32 cents/b at the 0830 GMT close of Asian markets on Thursday, before OPEC ministers concluded their ongoing meeting in Vienna.

ICE Brent futures declined overnight after the first round of OPEC meetings concluded late Thursday, with the new cut agreement hinging entirely on Russia's nod of approval.

In the lead up to the meetings, Russia has repeatedly stated its position against further production cuts to prop up sinking global oil prices.

"We have no Plan B," Iran's Bijan Zanganeh said, adding: "Tomorrow, everything depends on non-OPEC agreement," he said. "If they don't accept it, we have no deal."

The group's new plan would see OPEC assume 1 million b/d of the cuts and non-OPEC producers take on 500,000 b/d. That would be on top of the alliance's existing 1.7 million b/d in supply curbs for full year 2020, instead of just the second-quarter, sources said Thursday.

MAY TRADING TO SEE DELAYS

The Asia crude market is likely to retreat back to the sidelines till further clarity around supply cuts emerges, market participants said Friday.

Additional delays to the May trading cycle are likely as the OPEC+ conclusion will cascade on to other decisions imperative to kick off spot market trading in the East, they added.

Producers in the Middle East are likely to wait for a decision from Russia before issuing official selling prices to Asian customers this month. The OSPs are typically issued within the first few days of each month, but are largely expected to be delayed till after the OPEC+ meetings are concluded.

Middle East crude spreads for Dubai futures opened lower across the curve Friday morning, compared with Thursday's close and continued to sink through the morning's trading session.

The front month April/May spread for Dubai futures dipped to minus 3 cents/b at 11 am (0300 GMT). It had been assessed at a backwardation of 3 cents/b at Thursday's 0830 GMT close for Asian markets.

Similarly, the May/June spread flipped into contango as well, pegged at minus 6 cents/b Friday morning, down from plus 4 cents/b assessed on Thursday. Intermonth spreads further down the curve moved in a similar manner.