In fact, Brent's premium over Dubai is now at its widest in 16 months since the end of 2019, indicating that the Middle East is so oversupplied that it must be sold on the international market at a significant discount to benchmark Brent. But once the price is sufficiently favourable, it will also trigger a shift in the direction of international buyers, which, sooner or later, will set off the next knock-on effect in the global oil market.
Earlier this month, OPEC and its Allies agreed to resume production by July by an additional 2 million barrels a day, gradually lifting curbs imposed since last year's outbreak and paving the way for eventual production to return to normal. OPEC+ has made this arrangement because they are confident that a further increase in the availability of vaccines will lead to a further pick-up in global economic activity. At the same time, expectations of a resumption of talks on Iran's nuclear programme have added to bets on increased supply from the Middle East. This coincides with the time window for North Sea fields to enter routine maintenance, creating a widening of the Middle East benchmark's discount to Brent.
This and the previous pattern just constitutes a sharp contrast. For most of the second half of 2020, the price spread between Brent and Dubai crude was negligible, with the latter occasionally going upside down. As a result, falling relative prices in the Middle East have reduced the need for Asian buyers to buy more distant supplies from the Atlantic Basin and West Africa. This was reinforced by the previous disruption of the Suez Canal. The cost of shipping Middle Eastern crude to Europe rose after the Suez Canal was blocked, as did Atlantic and West African crude destined for Asian markets, a key factor in widening the gap.
But the wide spread cannot last long, as competitive pressures on sellers begin to pass. Since last week, West African producers such as Angola and Nigeria have followed suit by cutting export prices, with some contracts falling to new lows since November. And international buyers are also focused on Iran since then further restore export capacity expected impact, because OPEC + production line is not included in Iran after the loss of export quotas because of sanctions, so once the country even if it is partial to restore export, is likely to make in fact is still very fragile global crude oil supply and demand balance situation again be reversed.
Analysts said the current price gap between Brent and Dubai crude may also be a positive factor for Middle Eastern producers, the dominant member of OPEC+, to take advantage of the opportunity to expand their global market share. However, the flexibility of buyers and sellers in the market also means that the high premium for Brent benchmark prices will not last forever, and producers could still be shooting themselves in the foot if they misread the outlook for supply and demand later on and push too hard to increase production and cut prices.
source： Hua Xian Tou Tiao
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