Crude price war pushes Brent/Dubai EFS to new low of minus $3/b

Singapore — Benchmark Dubai crude futures held their ground amid a further collapse in global crude oil prices, with spot demand for cheaper Middle East sour crude pushing the Brent/Dubai spread to a new low of minus $3/b Tuesday.

"Everyone wants to buy Dubai basis," said a US crude seller, implying that buyers were comparing all crude to cheaply available Middle East barrels in the market.

The relative preference for Middle East crude kept a floor under Dubai prices, while global oil futures fell further amid increasing coronavirus-related market concerns.

ICE Brent futures dipped further overnight, losing 4% from $31.57/b assessed at the 4:30 pm close (0830 GMT) in Asia Monday. At 11 am Tuesday morning, the crude contract was trading at $30.45/b.

However, May Dubai crude futures came off only 1% in comparison to $33.47/b at 11 am Tuesday morning in Singapore (0300 GMT). This pushed the May Brent/Dubai Exchange Futures for Swaps down to a new low of minus $3/b at the same time.

The EFS -- a key spread to track relative strength of Brent-linked crude versus Dubai-linked crude -- was previously assessed at a record low of minus $2.37/b on Monday at the 4:30 pm close.

The strength in Dubai crude futures relative to Brent was linked to Asia's preference for Middle East grades and was starting to amplify now that spot market activity has kicked off for the May cycle, said traders.

Additionally, a spike in freight rates globally closed down arbitrage routes from West Africa, Europe and the Americas, making Middle East crude the most feasible to transport out of the lot, they added.

Shipping crude from West Africa to Asia was costing buyers around $10/b as of Tuesday morning, and $6/b from the Persian Gulf to Asia, according to one refiner based in the region.

Refineries and buyers, who had been occupied with running linear programming models and evaluating the most valuable barrel of crude to run in their refineries, are expected to emerge on the spot market this week to pick up cargoes for the May cycle.

Sellers of Middle East sour crude took advantage of the spike in buying interest starting late Monday, offloading more than 2 million barrels of various Middle East sour crude grades in the Platts Market on Close assessment process.

Monday's MOC saw Petrochina as the lone buyer purchasing a 100 partials -- or 2.5 million barrels of Dubai and Oman crude, with four deliverable cargoes totaling 2 million barrels on convergences for Dubai partials.