October Brent/Dubai EFS spread narrows; arbitrage viability increases

The front-month Brent/Dubai Exchange of Futures for Swaps, or EFS, spread was narrower midmorning Aug. 10, reflecting the gradually increasing viability of arbitrage grades.

The October Brent/Dubai EFS was pegged at $3.31/b at 11 am Singapore time (0300 GMT) on Aug. 10, narrowing 20 cents/b from the Asian close Aug. 6, S&P Global Platts data showed.

The Brent/Dubai EFS is a key indicator of the spread between light, sweet and heavy, sour crudes, and a narrower EFS makes crude priced against Dubai less economically attractive for Asian refiners compared with Brent-linked ones.

While trading activity for October-loading barrels in the Middle East is yet to commence, market participants expect increased viability of arbitrage flows to weigh on the sour crude complex this trading cycle.

"Don't know why PG grades are still strong, I think it should get weaker," said a crude oil trader based in north Asia. "The offering level for Mars is lower than Oman now ... there is room for downward adjustment as [PG] is too strong."

Tepid demand from Chinese independent refineries in the last trading cycle has also dampened premiums for West African crude grades, adding to arbitrage pressures for sour crude grades in the Middle East.

In its most recent tender seeking crude from the Middle East, West Africa and the US, the Indian Oil Corp. bought 2 million barrels of Nigerian crude, according to market sources, though this could not be verified at the time of publishing.

At midmorning in Singapore, the October/November Dubai time spread was pegged at 57 cents/b, narrowing 6 cents/b from the previous day, Platts data showed.

The November/December Dubai time spread was pegged at 54 cents/b, narrowing 5 cents/b from the previous day, the data showed.