Crude
Market Overview
Brent-Dubai EFS has weakened considerably as the Brent leg showed weakness from perceived increased flows from the Middle East.
However the geopolitical tensions surrounding the chokepoints of Strait of Hormuz and the Red Sea remain very fragile. Any escalation or targets on energy infrastructure can quickly widen Brent-Dubai EFS again.
Thus we maintain a positive bias on Jan Brent-Dubai EFS.
On paper, WTI arbs continue to look attractive into Far East compared to Murban but decisions for making the arb work are getting harder due to the huge premium on freight that seems to outcompete each other.
VLCC freight cost from USGC to Far East has jumped from 25M USD to 58M USD in one month, equivalent to a 16.5$/bbl increase.
VLCC freight cost from Fujairah to Far East also increased WS230 to WS761 in the same timeframe, equivalent to a 13$/bbl increase.
Product cracks are not fully adjusting to the rise of freight rates yet, so it is up to the crude FOBs to do the heavy lifting.
With US 40 mb SPR imminent and high TD25, WTI/Brent has widened and will likely incentivise for the arb to be flowing into NWE first and Asia second.
