A fortnight of two halves in Brent/Dubai, encapsulating the market’s duality in the year-to-date. The first week was relatively rangebound as prices hovered around -10c/bbl, with volumes low due to the US holiday. As Brent and WTI rallied, Dubai did not follow up as aggressively. This resulted in a massive rally where Aug jumped from -10c/bbl to +40c/bbl in a week, with the banks and funds being the buy-side aggressors. The price action embodied short-covering flows as Aug gapped up by 20c on 12 July. Finally, on 16 July, we saw majors and trade houses step in to counter the bank buying flows, and price action has since corrected lower with Dubai spreads better bid. Whilst the Aug/Sep box had rallied from -10c/bbl to +6c/bbl, a 1mb offer from a major pressured it down to +1c/bbl.
The rally in WTI and Brent contributed to a stronger Brent/Dubai performance. With freight prices weaker, the arbitrage between the Atlantic Basin and Asia opened, with physical players rushing to lock in initially favourable differentials. Refiner buying in Aug24 contributed to this as they sourced cheaper cargos on a Brent basis. Meanwhile, China, Japan, and South Korea refiners are importing more Canadian crude, including GS Caltex, ENEOS, SK Energy, Rongsheng, and Hengli all purchasing cargos. Physical pricing has been relatively strong, with various players including Shell, Petrochina and Mitsui on the buyside. Meanwhile, the Bal-Jul/Aug Dubai spread has been pricing at 90-95c/bbl, up from 80c/bbl levels a week prior.
However, we may be in the beginning of a downtrend as Brent/Dubai structure has been pressured since the start of this week. Brent/Dubai outright and boxes have corrected lower amid more sell-side interest, and we expect price action to resume its usual pattern of grinding lower as the relatively cheaper Dubai crude attract more buyers. Should WTI and Brent mean revert lower, this would further weaken Brent/Dubai.
