Brent-Dubai crude EFS narrows after hitting 14-month high last week

The Brent/Dubai Exchange of Futures for Swaps, the premium of ICE Brent crude oil futures to Dubai swaps, has started to correct downwards after hitting a near 14-month high last week, mainly due to the slide in front-month ICE Brent crude futures amid profit-taking.

The January EFS was assessed at $2.38/b at the 0830 GMT Asia close on Wednesday.

The EFS spread started to narrow on November 8, after hitting a near 14-month high at the November 7 Asia close at $2.84/b, S&P Global Platts data showed.

This level was the highest since September 19 last year, when it was assessed at $2.89/b, according to the data.

Last week, the EFS got a boost from strong Brent crude futures, which surged to more than a two-year high.

On November 6, the ICE January Brent futures contract settled at $64.27/b at the Asia close, the highest for the front-month contract since June 2015.

Brent futures have, however, started to move downwards since then, settling at $61.87/b on Wednesday. As of 0515 GMT Thursday, ICE January Brent was at $61.96/b.

Recent geopolitical tensions in the Middle East — Saudi Arabia’s anti-graft probe, strains with Iran over a missile fired over Riyadh, and growing optimism in the market on the possibility of OPEC extending its supply cut agreement — were major factors contributing to the surge in crude prices, analysts said.

“Developments in Saudi Arabia justify a risk premium on the oil price,” Commerzbank analysts had said in a note late last week.

The strength displayed was, however, short-lived amid a correction in Brent crude futures after prices crossed the two-year peak and as bearish factors emerged this week.

ENTRANCE OF BEARISH FACTORS

Downward pressure took over when the International Energy Agency Tuesday revised down their oil demand forecast, prompting investors to exit their long positions.

“Cautious demand forecast from the International Energy Agency triggered a 2% sell-off in both Brent and WTI crude oil benchmarks,” UOB analysts said in a note Wednesday.

In its latest report, the IEA said it expects supply to exceed demand by 600,000 b/d in the first quarter of next year, followed by another smaller surplus of 200,000 b/d in Q2.

A rise in US crude stocks against wider expectations of a drawdown also exerted bearish pressure on prices.

US crude stocks rose last week by 1.854 million barrels to 458.997 million barrels, according to US Energy Information Administration data released Wednesday, while analysts surveyed Monday by S&P Global Platts had expected a drop of 1 million barrels.

Gasoline stocks rose 894,000 barrels to 210.431 million barrels the week ended November 10, according to EIA data, against analysts expectations of a draw of 1 million barrels.

“Crude oil prices fell after another batch of weak data threw doubts over the state of the market,” ANZ analysts said in a report Thursday.

Prospects of rising shale output also softened the Brent crude complex.

EIA’s latest Drilling Productivity Report said US shale production may gain 80,000 barrels to a record 6.17 million barrels/d in December, Commerzbank analysts noted.

This would see US shale oil production soar by nearly 1 million b/d within a year, they added.

The market is on a close watch for the upcoming November 30 OPEC meeting, which would provide a more definitive outlook for supply in the longer term.
Source: Platts