The Brent/Dubai market saw another tumultuous fortnight that ultimately resulted in an upwards shift in the prompt tenors. Cal25 has been comfortably supported at the $1/bbl level. However, the main story has been in the front, where the Nov’24 Brent/Dubai initially threatened to break below $1/bbl on multiple instances before rallying above $1.20/bbl on weakness in Nov’24 Dubai.
As Nov/Dec Dubai witnessed aggressive selling, the spread fell from $0.45/bbl to $0.30/bbl before correcting up to $0.35/bbl. The prompt time spread had fallen to 3-month lows, and the sell-side intensity was such that the Nov/Dec/Jan Dubai fly fell into negatives, and is marked at -$0.03/bbl (at time of writing). In line with this, the Nov/Dec Brent/Dubai box was supported up to $0.10/bbl, creating a kink on the Brent/Dubai forward curve. However, we did not observe a consistent flow that fundamentally justifies or motivates this move. As detailed in the trade idea, we believe this area may be due for a correction.
Market participants’ perception of Middle Eastern geopolitical risk has been fluctuating, and price action has accordingly been topsy-turvy. Increasingly, price action has been driven by Brent futures, with the corresponding spikes and elevated volatility in Brent/Dubai having sidelined many participants. Instead we’ve observed increasing screen trading on Brent/Dubai, with OTC volumes relatively quiet. Open interest in the Nov’24 Brent/Dubai has plateaued and declined since 4 Oct, falling by 9% from 73.7mb to 66.9mb. Comparing this to the open interest of the previous months, levels in the current M1 are the lowest relative to the previous months.
Dubai physical premiums have weakened since the previous report, falling from $1.84/bbl on 11 Oct to $1.55/bbl on 21 Oct, suggesting expectations of a better supplied market going into the January-loading cycle. Market positioning shows selling interest in the Q4’24 Brent/Dubai tenors from a variety of players, looking to sell into the highs. However, price action in outright Brent/Dubai has not grinded lower, stubbornly sitting above $1/bbl. We therefore may be entering a new regime in this market, in stark contrast to the trading ranges this time last year.
