Benchmark Dubai crude futures spreads tracked up in step with intermonth spreads for ICE Brent futures in mid-morning trade in Asia Thursday, with the economics of arbitrage supply from the North Sea to Asia dictating sentiment in both regions this week.
At 11 am in Singapore (0300 GMT) Thursday, the January/February Dubai crude futures spread was notionally pegged at 92 cents/b, up from 88 cents/b assessed at the 4:30 pm in Singapore (0830 GMT) Asian close of trading Wednesday.
The spread for January/February ICE Brent futures moved in largely the same way between the two timeframes; pegged at 93 cents/b Thursday morning and assessed at 87 cents/b Wednesday evening in Singapore.
Similarly, the February/March spread for both ICE Brent and Dubai futures was pegged at 69 cents/b Thursday morning and assessed at 66 cents/b Wednesday evening.
Supply constraints in both Europe and the Middle East have led to a backwardated market structure for Brent and Dubai, traders said.
Since excess crude supply in Europe — for grades such as Forties or Urals — typically flows readily into Asia, the absence of this arbitrage is driving market structure in both geographies, they said.
Russia’s medium sour Urals crude is currently undergoing a multi-year supply shortage for its November and December loading programs.
Meanwhile, low sulfur maritime requirements from January 2020 have raised demand for light sweet crudes in the North Sea, such as Forties, which would have otherwise eased the backwardation in the Brent structure, traders said Thursday.
In Asia, refiners said they are seeing tighter volumes of medium sour crude grades loading from the Persian Gulf in January, but respite from supply shortages by way of arbitrage flows from Europe was proving difficult at present due to high freight rates making Middle East crudes more economical.
Flow of Iraqi Basrah Light and Heavy crude to Asia, for instance, is expected to tighten as demand from Europe picks up, market participants said. Basrah Light can be used by refiners in Europe as a substitute for Urals, with both grades falling in the medium, high sulfur crude quality range.