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Brent/Dubai spread falls to record low as sour crude oil complex surges

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Brent/Dubai spread falls to record low as sour crude oil complex surges

Singapore — Dubai crude's discount to Brent narrowed to its lowest on record Thursday, as robust trading amid tightening medium sour crude oil supplies led the Middle East sour crude complex higher.

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The April Brent/Dubai Exchange Futures for Swaps spread -- a derivative instrument tied to spot market sentiment of Brent-linked and Dubai-linked crudes globally -- shrank to 21 cents/b at the close of Asian trading at 0830 GMT on Thursday.

This is a record low for the EFS spread since S&P Global Platts started publishing it in August 2011. The front-month EFS spread's last low was on August 28, 2015, at 30 cents/b, Platts data showed.

The EFS, often used as a proxy by crude traders to hedge barrels of physical oil moving between the Europe and Asia, has been on a downward trajectory since the beginning of this year.

Global crude oil fundamentals typically dictate that lighter, lower sulfur crude oil such as Brent command a premium over heavier and higher sulfur grades -- a large chunk of which is produced in the Middle East and priced against Dubai.

However, several geopolitical events, including OPEC production cuts and the sanctions on Iran and then on Venezuela, have shrunk supplies of medium and heavy crude grades, as well as those higher in sulfur content.

The EFS slid from a multi-year high of $4.42/b on April 30, 2018, to begin the year at $1.05/b as the momentum of shrinking supplies started to amplify.

It slid below $1/b -- a level the spread has only sunk below a handful of times in the last decade -- on January 22, and has remained below that since.

Meanwhile, production of lighter, sweeter crude grades, including from the US, is on the rise, adding to an oversupply of such grades globally.

The shifting fundamentals between grades has been reflected in the prompt physical market as well.

Platts cash Dubai crude was assessed at $65.30/b on Thursday, a premium of 71 cents/b over Brent futures as of 0830 GMT.

Similarly, the front-month March Brent/Dubai swap touched a record low at minus 21 cents/b as of 4:30 pm Singapore time (0830 GMT), Platts data showed. This is also the first time that the swap has flipped into negative territory since Platts started publishing the swap spread in 2001.

-- Eesha Muneeb, eesha.muneeb@spglobal.com

-- Avantika Ramesh, avantika.ramesh@spglobal.com

-- Edited by Haripriya Banerjee, haripriya.banerjee@spglobal.com