The past fortnight saw the soon-to-be-prompt Mar Brent/Dubai contract rise above 80c/bbl on Jan 16, before sinking to 50c/bbl by Jan 24 and then rise again to 60/bbl come Jan 29. This oscillation over the fortnight has painted a rangebound picture of front Brent/Dubai contracts despite the backdrop of wartime risk premia emerging out of the tensions in the Red Sea.
In the week to Jan 25, Brent/Dubai rallied on the back of buy-side interest from a variety of market participants amounting to nearly 2mbbls. However, the Feb/Mar and Mar/Apr boxes saw sell-side interest by majors/NOCs and trade houses, respectively. Amid these alternating flows, the almost-Bal Feb Brent/Dubai contract came off from levels just shy of 90c/bbl on Jan 17 to 50c/bbl a week later only to finally correct to 60c/bbl the following day. In the following, we watched markets price in the news on a Houthi missile hitting a Trafigura-operated oil tanker. Mar/Apr Dubai spreads were aggressively bought by trade houses and producers, rallying from 25c/bbl on Jan 23 to 40c/bbl on Jan 29. However, with Brent spreads also strengthened amid the volatility, the Mar Brent/Dubai climbed from 50c/bbl on Jan 24 to 60c/bbl on Jan 29. Although on the back of Feb/Mar and Mar/Apr Brent/Dubai box selling, Brent/Dubai prices once again declined with the Mar Brent/Dubai seen trading at 50c/bbl levels on Jan 30.
The past fortnight has undoubtedly observed a swell in trading volumes and open interest, but this influx of players is still not observed taking a unidirectional view of the market. Despite the geopolitical risk premium sounding alarms in other markets, the Dubai complex has managed to reach an equilibrium of sorts. It will be interesting to see how further developments in the conflict will impact how it is priced, but for now, we appear stuck in a market where any aggressive buying or selling is considered as noise rather than a view.
