Trade Idea: Short March Dated/Dubai

Onyx Research Analyst Mita Chaturvedi’s trade idea this week is to short the March Dated/Dubai.

Light sweet crude has enjoyed a significant rally over the past two weeks. The Brent/Dubai Exchange of Futures for Swaps (EFS) reached its highest level since late November last week, reflecting the growing tightness in the market for sweet, Brent-linked crudes.

This tightness was further exacerbated by elevated tanker rates and light sweet outages in the Mediterranean, where all barrels are closed due to the ongoing Red Sea situation.

Notably, though, the strength in the Dated market seems concentrated to the front of the curve, with CFDs pricing in prompt physical strength with a strong backwardated structure. A lot of the strength in the physical hinges on the fact that WTI Midland flows from the US have been disrupted, coupled with a Forties pipeline issue. We expect that as these flows return, the tightness will be alleviated and reflected by lower Dated premiums.

With poor demand in Asia, we expect to see less demand for arbing Dated barrels into Asia – despite refinery maintenance in April. The Mar Dated/Dubai contract has contracted below the upper Bollinger band. While still in overbought territory according to the RSI, levels have been retracing lower. We expect this to continue.

We suggest entering short at 55c/bbl and scaling into the trade with a tight stop loss to protect from a retracement higher, should the strength in the prompt Dated market filter further down the curve.