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Key Brent/Dubai crude spread dips below $2/b amid global market selloff

Singapore — The Brent/Dubai Exchange of Futures for Swaps, a key indicator of ICE Brent crude oil futures' premium to benchmark cash Dubai, slipped below $2/b on Wednesday as global crude oil prices took a hit from bearish sentiment, said market sources.

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Front-month December EFS was assessed at $1.98/b as of 4:30 pm Singapore time (0830 GMT) on Wednesday. The spread was last lower on August 27 where it stood at $1.84/b, S&P Global Platts data showed.

The spread between Brent and Dubai is tracked as a barometer of strength in the European and Middle Eastern crude markets. Brent-linked grades from the North Sea can be arbitraged to Asia to replace Dubai-linked barrels when the spread is narrow enough that crude economics warrant a switch between the two.

The recent volatility sparked by a global selloff in ICE Brent Futures has been a strong reason for the EFS to narrow, market sources said.

Front month ICE Brent futures, which crossed a near five-year high of $86/b earlier this month, has corrected downward by more than $10/b since then, Platts data showed.

As of 0830 GMT Wednesday, the futures contract stood at $75.70/b, Platts data showed.

The global selloff also pulled prices for Dubai swaps downward, albeit at a relatively slower rate than ICE Brent futures.

The December Dubai swap was down to $73.72/b Wednesday, compared to $76.75/b the day before. It reached a month-to-date high of $82.85/b on October 4, but has been on a downward trajectory since, Platts data showed. Market structure for Dubai swaps has also weakened considerably this month. The intermonth spread for November/December Dubai swaps was assessed at 17 cents/b as of 4:30 pm Singapore time on Wednesday, down from 66 cents/b at the start of the month.

OPEC & US SUPPLIES ERASE SHORTAGE FEARS

Saudi Arabia's commitment to increasing more crude oil supply along with rising inventories in the US are factors setting the bearish tone for prices in recent days, market sources said. Earlier this week, OPEC and its allies were in a "produce as much as you can mode," media reports quoted Saudi Arabian energy minister Khalid al-Falih saying.

Falih also stated the country would hike its crude output up to 11 million b/d. Saudi Arabia supplied 10.502 million b/d in August, the latest data from the Joint Organizations Data Initiative showed.

"Supply worries turned on its head and the markets are now worried about the prospects of rising supply," said UOB Bank in a note.

Meanwhile, rising US crude inventories is another factor adding pressure to markets, said sources.

Data released on Wednesday by the US Energy Information Administration showed that total commercial crude inventories for the week ended October 19 rose for the fifth straight week by 6.35 million barrels to 422.79 million barrels.

US crude exports increased by more than 22% week on week to 2.18 million b/d from 1.78 million b/d during the week prior, EIA data showed.

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

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

--Edited by Liz Thang, elizabeth.thang@spglobal.com