Brent/Dubai EFS hits widest in 14 months, could hamper arbs

The Brent/Dubai Exchange of Futures for Swaps has widened to its widest spread in over 14 months in a price move which could decrease the movement of Brent-related crude to Asia, traders said.

The front-month EFS, the premium of Brent futures over Dubai swaps, was assessed 11 cents/b wider at $3.12/b by S&P Global Platts in London hours Monday, the widest spread since a $3.16/b assessment on September 8, 2016.

In early Tuesday European afternoon trading, the January EFS was seen trading at around $3.17/b.

As a wider premium of Brent over Dubai generally means the cost of buying Brent-linked crudes is growing relative to Dubai-linked crudes, the widening spread could result in a reduction in Brent purchases by Asian refiners, traders have said.

As North Sea and West African crudes both flow to the Far East in large quantities each month, a drop in Asian demand for these barrels could reduce differentials.

So far for December, Statoil and Gunvor have both been reported to have fixed VLCCs for North Sea-Far East voyages, but so far no further VLCCs have been heard to have been fixed.

This week OPEC and non-OPEC delegates are meeting in Vienna to decide whether to extend its round of production cuts for another year. An extension of the cut would impact Dubai-related crudes more than Brent-related crudes, due to the production locations of the larger OPEC members.

“It’s an important week with the OPEC meeting and we need to see whether there will be an extension,” said a West African crude trader. “If it gets renewed the first one to feel the impact will be Angola. The Chinese will focus on grades related to Dubai.”
Source: Platts