DUBAI FUTURES: Brent/Dubai EFS recovers; arbitrage flows remain thin

The February Brent/Dubai spread rose at the Asian opening Dec. 22, lifted by an upturn in sentiment for Western demand that led to a sharp overnight rally in Brent futures, while arbitrage flows were heard to be thin.

At 11am in Singapore (0300 GMT), the February Brent/Dubai EFS was pegged at $2.58/b, up 14 cents/b from the Asian close on Dec. 21, bucking the downward trend in the spread since Dec. 16, data from S&P Global Platts showed.

The EFS, or Exchange of Futures for Swaps, is often tracked as an indicator of North Sea low sulfur crude value versus Middle East high sulfur crude, and a wider EFS makes crude priced against Dubai more economically attractive compared to Brent-linked ones.

The EFS is recovering on the back of rising Brent futures, which rallied overnight as the market shed fears over the omicron-induced lockdowns in the West.

The wider EFS could reduce incentive for the procurement of arbitrage grades, whereby trades have already been thin amid soft demand cues from Asian refineries.

"US grades such as Mars are not coming a lot, arbitrage was open at the beginning of the month but have not seen a lot of Asian refinery buying since," said a source with a North Asian refinery. "Although EFS shrinking in the last few days could bring in more Western grades, demand for those grades is still not so much, and demand for Asian refineries is mostly covered already."

While most end-user requirements have been fulfilled for the February-loading trading cycle, several cargoes of Oman crude are heard yet to be placed with end-users, sources said, which could provide strong competition to arbitrage grades such as Urals.

Dubai swap values rose at the Asia opening Dec. 22 compared to the Dec. 21 Asian close.

At 11am in Singapore (0300 GMT), February Dubai swap was pegged at $71.64/b compared to $69.10/b on Dec. 21 close, the data showed.