The Brent/Dubai EFS arbitrage spread narrowed to near $3/b in mid-morning trading hours in Asia Thursday, as an uptick in physical buying activity in the Middle East spot market kept a floor under market structure.
At 11 am in Singapore (0300 GMT), the August Brent/Dubai Exchange Futures for Swaps spread was notionally assessed at $3.05/b, down from $3.18/b at the close of trading in Asia on Wednesday at 4:30 pm Singapore time.
A narrower spread indicates relative strength in Dubai-linked crudes compared to Brent-linked ones. Additionally, $3/b is a key inflexion point for the spread, with arbitrage flow from the North Sea to Asia economically viable when the spread drops below this point.
The sour crude market structure, which is the Dubai M1/M3 swap spread, was largely steady at $2.22/b at 11 am Thursday in Singapore. It was assessed at $2.23/b at the close of trading in Asia Wednesday.
Meanwhile, backwardation in the August/September cash Dubai spread hovered around $1.56/b Thursday morning, this compares to a backwardation of 78 cents/b in the August/September ICE Brent futures spread at the same time.
Active spot market buying this week has lifted sentiment in the Middle East sour crude market, traders in Singapore said. On Thursday, Taiwan's Formosa Petrochemical Corp. was heard to have purchased three cargoes totaling 1.5 million barrels of Oman crude in its spot tender at a premium of around $2.30/b to Platts front month Dubai crude assessments.
Traders are currently buying August-loading cargoes in the physical spot market.
However, plateauing demand from Chinese refineries has dampened market sentiment, some traders told S&P Global Platts on Thursday. Chinese refiners have cut refinery run rates due to unprofitable margins on oil products, they said.
A spot tender offering Iraqi Basrah Heavy crude by SOMO this week was not awarded to any of the regular Chinese majors that can typically afford to pay lofty premiums for the grade.
Last month for example, the Basrah Heavy tender by SOMO was awarded to a Chinese end-user that paid $2.25/b over the June OSP for the cargo.
In the latest tender however, Chinese buyers said their offers were significantly lower. SOMO awarded the tender at a premium of 90 cents/b to the July Basrah Heavy OSP for Asia.
