Feb Brent/Dubai rose to 97c/bbl on Dec 18, but by Christmas the now prompt month slipped down past 40c/bbl. The early window on Dec 22 saw the Brent/Dubai structure nearly collapse. The market was liquid and we saw a player consistently, aggressively sell the Jan/Feb box. The now Bal-Jan/Feb box fell to -27c/bbl. This prompted Brent/Dubai to collapse in conjunction as it traded down to flat in Jan and between 35-50c/bbl in Feb.
There has been a little rebound as January began, although it has been pretty quiet in terms of price action and flows. There has been some support in prices from refiners. These players are natural buyers of Brent/Dubai, and as they lock in prices they support the market. Coming into 2024, producers and refiners are holding fairly large-sized long positions in the Feb contract, with producers long in the Bal and the Q2 contract too.
Producers have held around 1mbbls of length since mid-Nov and are quite comfortably in the money. As prices continue to soften we may see these players start to close these positions inch by inch, to protect their gains made over the past 6 weeks. It will be interesting to see the strength of conviction in the reappearing geopolitical risk premium and its boost to Dubai grades. On Jan 1, Iran reacted to the sinking of Houthi boats by the US Navy by dispatching a warship to the Bab El-Mandab Strait. However, with the lack of significant reaction in freight rates compared to their movement in December, and as Chinese and Russian ships are not being targeted, the story may be already written. With this said, the Red Sea disruption does impact some shipping to China as the 2mbbls minimum VLCCs can not pass through the Red Sea.
We have seen lots of interest in selling Jan and Feb Dubai outright while concurrently buying the box. Looking further along the curve, however, we have seen banks looking to sell backend boxes, Q3/Q4 box offered and Q3/Cal’25 trading at 1c/bbl on Jan 02.
Looking forward, prices could continue to be pressed. Feb Brent/Dubai lost 35% in the Singapore window on Jan 02 and the physical picture seems quite pessimistic. Russian crude is proving difficult to obtain, physically speaking. In addition to this, Middle Eastern refinery capacity is increasing which is providing a more substantial competition for Eastern crude.
