After a relatively rangebound week to Jan 11 for Feb Brent/Dubai, oscillating around the 30c/bbl mark, price action soared – rising over 80c/bbl in less than a week to reach highs of 102c/bbl on Jan 16. Jan 12 was the catalyst rising over 50c/bbl intraday. A flurry of Chinese players looked to buy, which was sold into initially, before other players caught wind and got on board the prompt Brent/Dubai freight train. A number of players who were short Brent/Dubai were forced to stop out and despite prices trying to sell off again, this retracement did not materialise. A textbook example of this was looking at tenders over the week. Usually this promotes sell side interest due to players taking down the tender flow and then hedging by selling Brent/Dubai on the paper. However, this time we saw tenders have little effect, as the usual players who take down the tender flow did not even hedge, a very bullish signal.
This bullishness stemmed from both aggressive buying in Q2 Brent/Dubai and the Feb/Q2 Brent/Dubai box. Thus, these two factors in combination led to a strong rally in Feb Brent/Dubai. Q2 Brent/Dubai rallied from lows of 38c/bbl on Jan 11 to highs of 90c/bbl come Jan 16. Dubai spreads have themselves been very quiet, with some interest but nothing aggressive, as aforementioned, the real flow has come from quarterly boxes, in particular Feb/Q2 Brent/Dubai.
In the backend, there has been some selling flows from banks in Q4 and Cal’25 Brent/Dubai, however, currently most flows are very much skewed to the buyside. Nevertheless, looking at the short term, Feb Brent/Dubai could be set for a retracement lower as it approaches the $1/bbl mark. This has acted as a key resistance barrier with players happy to sell once it surpasses this level. However, the downside could be limited, as players likely have much more ammo to fire in order to defend the recent length they have put on. Thus, it is possible that participants will not chase the level up but will be happy to buy on a dip, unless the market seems to want to sell off further.
Looking forward, there is no clear reason why this buyside flow into Q2 is likely to subside. Geopolitical tension is potentially making players more apprehensive about trading Dubai, as seen with a quiet Singapore Window on Jan 16. The arb is shut and freight is extremely high, yet spot is pricing strong at 85c/bbl in the Bal-Jan/Feb Dubai spread. Thus, this shows players are keen to buy spot cargoes, maybe with the feeling of trying to buy before it is too late. The moment escalations in conflict reach a certain threshold and participants realise trading is too risky, could be the moment Brent/Dubai moves even higher.
