It seems like the flipping of the calendar month has brought with it a debilitation of Dubai’s strength. The prompt contract has returned to what would be arguably ‘normal’ positives, considering the makeup of the barrel. Dubai had been unnaturally strong, considering the fundamentals, and June began with the prompt July Brent/Dubai contract hitting lows of -45c/bbl on June 3. Dated/Dubai had been eviscerated, with June Dated/Dubai pressured to lower than -$2/bbl as it became the Balmo, encouraging the plentiful cargoes to be arbitraged East.
Brent spreads had sold off; the Dubai spreads followed them. Spread buying was exacerbated by outright Brent/Dubai buying from trade houses, funds and majors, amongst others. The WAF overhang that had come to define May Dated’s weakness began to be eaten into and dispersed, which allowed for Dated to roof in June, supporting Brent spreads. We have seen strong selling in Dubai spreads down the curve from both physical and financial players, with trade houses dominating the selling flow, selling over 1.15mb of the front Jul/Aug spread in the fortnight.
Dubai’s weakness has allowed both Dubai spreads and Brent/Dubai to reverse. Brent spreads supported, and Dubai weakened as Dated reversed on a dime. The strength seems best described as grinding up rather than a really aggressive rally of about 5-10c in a day with some hedging pressure on the sell-side. This strength can be shown best in the Bal-Jun/Jul Brent/Dubai box, which traded sideways for much of May; this rose from -45c/bbl on June 4 to highs of almost 50c/bbl on June 18. Looking to the future, it seems there may be more strength in Brent/Dubai. We have seen funds buying the prompt Brent/Dubai as recently as June 17, showing speculative buyers continuing to pile into the contract. It is important also to consider the weakness in Eastern margins. Asian M1 refinery margins have inched up to $5.60/bbl on June 17 on Dubai’s weakness, and the front gasoline and gasoil spread are now (just) out of contango, at 5c/bbl and flat, respectively. With this said, the outright margins remain weak, and this fails to inspire hope in Dubai, so we expect prices to stay a little sweeter for Brent.
