Brent-Dubai crude futures spread widest in 4 months following overnight oil rally

Singapore — Middle East benchmark Dubai crude futures slipped further below Brent futures in mid-morning trade in Asia Nov. 25 after an overnight broad-based rally pushed the global oil benchmark to the highest since March.

The January Brent/Dubai Exchange of Futures for Swaps – a measure of light, sweet Brent's premium to medium, sour Dubai – widened 5 cents/b day on day to 91 cents/b at 11 am Singapore time (0300 GMT) Nov. 25, the widest since July 17, when it was 92 cents/b.

S&P Global Platts assessed the January Brent/Dubai EFS at 86 cents/b Nov. 24.

The uptrend in Brent futures continued in Asia morning trade as risk-on sentiment continued across financial assets as markets factored in a smooth transition of government in the US and the anticipated nomination of former Federal Reserve Board chair Janet Yellen as US Treasury Secretary.

While Dubai crude futures moved higher in tandem, their discount to Brent futures widened on a lack buying interest in the last leg of trading for January-loading Middle East crude.

Reflecting the easing fundamentals, the December/January backwardation narrowed to 18 cents/b at 11 am Singapore time (0300 GMT), down 3 cents/b from the Asian close Nov. 24, Platts data showed.

Traders said supply of January-loading Middle East crude remained ample, but sellers were holding back in the hope of benefitting from any late-cycle surge in demand.

All eyes were on India, which has emerged as a prompt buyer in recent weeks, for signs that refiners there may come back for December- or January-loading Middle East barrels.

"Yes, the Indians are looking for opportunistic deals, but sellers still asking for sky-high premiums; Indians will buy if they don't have to pay up," the trader said.

Broadly, market participants were now actively looking at the February-loading cycle as expectations build around significant increases in official selling prices from Middle East crude producers next week.

Traders said news of Iraq's State Oil Marketing company SOMO issuing a long-term tender to sell Basrah crude had created a buzz in the market.

"The pre-payment term is the most obvious part of the tender, but they chose the right timing as the market is high. If they had issued this [tender] last month, [SOMO] would not get good prices," the same trader said.

Iraq's offer has garnered interest from several Asian oil companies, Platts reported Nov. 24. SOMO had received numerous responses, especially from Asian companies, according to a source.

SOMO, the state marketer for oil exported from federal Iraq, had sent a letter to oil companies informing them of the proposal, which includes the upfront payment for a year's worth of oil supply. This is the first time that federal Iraq has proposed such a deal, but the semi-autonomous Kurdistan Regional Government in the north of the country already has similar contracts, where buyers essentially lend cash to the region.

Iraq exports most of its oil to Asia, counting India and China as major customers.