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Brent/Dubai spread dips amid surging freight rates to Asia

Singapore — Benchmark Dubai crude futures' discount to ICE Brent narrowed in mid-morning trade in Asia Tuesday amid surging freight rates for dirty tankers headed to Asia on the back of US sanctions on China's Cosco Shipping, market participants said.

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At 11 am in Singapore (0300 GMT), the December Brent/Dubai Exchange Futures for Swaps spread, or EFS, had narrowed to $2.77/b, after being assessed at $2.82/b at the 4:30 pm Singapore time (0830 GMT) close in Asia on Monday.

The US sanctions on Cosco Dalian company, imposed on September 25 for violations of sanctions against Iran, have reduced global VLCC supply by 5%.

Tighter availability of tankers has restricted flow of light North Sea crude into Asia that is linked to Brent prices. Free flow of these volumes into the East would typically keep Brent prices supported.

The Brent/Dubai EFS has averaged $2.99/b to date in October, compared with $3.60/b over September, S&P Global Platts data showed.

Strong demand in the Middle East and West Africa have also pushed up rates for these routes into Asia, according to market participants.

Asian dirty tanker rates on most vessel sizes for Persian Gulf loading saw their biggest single-day increases so far this year on Monday as US sanctions on subsidiaries of China's Cosco Shipping squeeze supply, pushing up rates to multi-year highs.

Platts assessed the benchmark Persian Gulf-China VLCC rate 20 points higher than the previous session at Worldscale 120, equating to $22.58/mt -- the highest in more than 11 years.

Dubai futures intermonth spreads remained largely steady meanwhile, as Asian traders return from extended holidays in the region. At 11 am in Singapore, the November/December Dubai futures spread was pegged at $1.14/b, after it was assessed at $1.12/b at 4:30 pm Singapore time Monday.

The December/January spread edged down to 97 cents/b Tuesday morning from 98 cents/b assessed Monday.

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

--Vickey Du, vickey.du@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com