The premium for Brent Crude prices to Dubai crude has evaporated in recent weeks and has swung to a discount as Middle East oil availability has shrunk with OPEC+ and Saudi production cuts.
This dramatic shift in the usual trading pattern could change global oil flows and prompt Brent-linked barrels to sell more easily on the Asian markets.
The spread between swaps for London’s Brent and Middle East’s Dubai crude has now turned into a discount of $1.60 a barrel on Monday, per data from brokerage PMV cited by Bloomberg. In early January this year, Brent traded at a premium of over $3 per barrel compared to Dubai crude.
Brent crude typically fetches higher premiums than Dubai crude due to the lower-sulfur content compared to the sour Middle Eastern grades.
The Saudi and OPEC+ cuts, however, have constrained the supply of Dubai-priced crude in recent weeks, prompting higher prices for the Middle Eastern benchmark, traders told Bloomberg.
Saudi oil giant Aramco, the world’s top oil exporter, has also raised in recent months the official selling prices (OSPs) for its crude going to Asia, further boosting the Dubai benchmark. Just this month, Saudi Arabia increased the prices to Asia after extending its unilateral production cut of 1 million barrels per day (bpd) into September.
The reduced supply from the world’s top crude exporter has sent the prices of sour crudes rallying in recent weeks. With a lower supply of Saudi and other Middle Eastern sour crudes, buyers are looking for alternatives in other parts of the world, driving up sour crude prices.
The latest shift in the typical Brent-Dubai price differential has resulted in one of the oil market’s hottest trades this year. Open interest of traders on the spread hit a record high and jumped by 67% in July compared to the same month of 2022, per data cited by Bloomberg.