Dubai Futures: Brent/Dubai spread narrows amid rebalancing hopes

Singapore — Benchmark Dubai crude futures' premium over ICE Brent narrowed in mid-morning trading hours on Wednesday, with some form of market rebalancing slowly taking shape from OPEC+ production cuts and easing of global COVID-19 related quarantine measures.

Oil markets are responding to "the OPEC+ cut, as well as activity [which] seems to pick up now with China buying," said a Singapore based crude trader.

At 11 am in Singapore (0300 GMT), the July Brent/Dubai Exchange Futures for Swaps spread ticked up to minus $1.25/b. It had been assessed at minus $1.45/b at the close of trading in Singapore at 4:30 pm (0830 GMT) Tuesday.

The EFS, which has been inverted from its typical positioning with Brent futures in a premium to Dubai since early March, depicts acute weakness in global oil markets underscored by a lower Brent value.

However, the inversion, which touched its lowest point at minus $6.21/b on March 31 during this period, has recovered rapidly in recent days as the new 9.7 million b/d OPEC+ production cuts come into effect over May.

On May 4, the first trading day of the month for Asian markets, the spread was assessed at minus $2.36/b, but has since been trading firmly above the minus $2/b threshold.

Still, crude traders in Asia said it was too early to call a direction for the market this month yet, as official selling prices from producers are yet to be released for the month.

Oil markets, which sank to multi-year lows when Saudi Aramco slashed its OSPs back in March, are still vulnerable to hefty price cuts at the hands of producers fighting for market share, they said.

Additionally, market participants said signs of demand recovery were starting to show in Asia, but were unsure how rapidly buy-side sentiment would return.

A surge in Asian crude demand for Middle East barrels could potentially boost Dubai crude futures to an even higher premium against Brent, said traders.

Intermonth spreads for Dubai futures also ticked up Wednesday morning in Asia. At 11 am in Singapore, the June/July Dubai futures spread was pegged at minus 66 cents/b, up 3 cents/b from minus 69 cents/b assessed at 0830 GMT Tuesday. Similarly, the July/August spread edged up 19 cents/b over the same period to be pegged at minus 49 cents/b at 0300 GMT Wednesday.