Dated v Brent

The Dated physical differential feels more supported after a choppy time last week, as it was not easily settled at the lower levels. There was strong buying in the front end, which allowed the differential to be priced at around +35c/bbl at the time of writing, which is more within the ‘normal’ range. In the physical, there was mostly WTI Midland being traded by a slew of different players, although a major filled a VLCC with Forties to send East. This is interesting considering how high the Dated/Dubai differential is. M1 Dated/Dubai is almost $2.00/bbl at the time of writing on 27 May, which is around its highest level since August 2024.

The North Sea crude market is mired in weakness, with bulls absolutely nowhere to be seen. WTI Midland cargos have been flooding the market, courtesy of Gunvor, and if this rate continues, they could single-handedly erase the US’s trade deficit. We initially thought the weakness was in response to OPEC+ cut rollbacks, but offers persisted despite a futures recovery. The amount of cargos offered is in the double digits, and Aramco and Exxon joined Gunvor on the sell side. Also on 12 May, Sinochem offered Forties, which was rare and unusual, flipping the script of the usual Chinese buying of Forties. The physical fell to lows of -$0.47/bbl on 8 May, though it has increased slightly to -$0.28/bbl by 12 May. Despite relative weakness in US grades and strength in refinery margins, there is a dearth of buying appetite in the front. Product markets seem well supplied, while West African (WAF) crude is overhung, add in weaker freight into the mix, and it is a cocktail for a fair bear run.

The Dated Brent market continues to drift lower, with the May’25 DFL falling from a high of over $1.40/bbl last Wednesday (23 Apr) to $0.70/bbl at the time of writing on 29 Apr. Simultaneously, the lower crude levels have supported the M1 European refinery margin, which strengthened from $6.75/bbl on 23 Apr to $8.10/bbl at the time of writing. We saw banks selling the DFL to hedge these high margin levels, which drift higher as Dated Brent weakens further.

The Dated market has retreated from the bullish hysteria since our last report on 1 April. There, intense stop-out flows saw decade-high trading volumes in the DFL. While the physical was more quiet, the futures was a completely different beast, and we have covered the ‘Liberation Day’ fuelled sell-off extensively elsewhere. Futures weakness was at odds with Dated strength, and physical differentials above $1/bbl is a testament to that. It is now a WTI story, with Midland setting the curve. Gunvor was the preeminent bullish player, taking May expiry cargos and lifting WTI Midland cargos in the window. Recently, Total and BP were also buyers. However, the bullish sentiment has waned, with US-based sellers, like Exxon, entering the fray. There is better selling in the front of the curve by multiple players, especially on 14 April, and it remains to be seen how much lower they can push down the diffs, if they continue.

At the time of our last report on 18 Mar, strength in the physical market we saw at the start of March had started to decline, with the Dated physical differential falling about 40c down to $0.45/bbl from 05-20 Mar. While we expected buying in the physical at these lower levels, buying has been much more aggressive and sudden than anticipated. In the window, we saw Vitol bidding Forties and Totsa came in bidding Midland, both in large volume. As a result, the physical diff rallied all the way up to $1.06/bbl, with BP being a seller in the physical at these high levels. The end of refinery maintenance season heading into April may have contributed to this rally, as demand for cargoes in May is quickly increasing.

The Dated Brent physical has seen a strong performance, with the physical differential stable and rangebound around the 80c/bbl region. Prompt CFD rolls have rallied, with the 24-28 March 1-week roll rising to $0.35/bbl. This comes despite being in the midst of refinery maintenance season, and the strength can be attributed to robust refinery margins, which may have spurred some refineries to delay their schedules.

There is currently a divergence between sentiment in the physical and futures markets. The former has seen a strong performance with Totsa and Trafigura on the buy side of the physical. In contrast, Brent futures flat price and spreads were pressured lower following the surprise announcement by OPEC+ confirming their intention to bring back barrels in April. As a result, we expect prompt March Dated to price out strongly, while we hold a cautiously bearish view in the deferred. Reflecting this, the Bal-Mar/Apr DFL has risen from $0.15 to $0.40/bbl w/w.

This week, we have seen a good example of the dichotomy between Brent’s futures and the physical market that underpins it. In the physical, it seems that the market has found a floor this week. Equinor and Gunvor were running down the physical premium with good offering, but this has been met with better buying now. On 17 Feb, Glencore, PetroIneos, and Totsa were bidding for Forties and Midland, and we expect some better support here with good refiner buying seen with decent margins. Our view is that for this month, there is not a lot of crude left in loading cycles for the North Sea grades. This leaves Midland’s availability key to the strength of Dated. The cold weather in the US, along with fog issues at ports, could cause some issues here, from what has been some strong export levels from the States.

The re-election of President Trump has brought havoc and hysteria to oil market sentiment. Trump’s predictably unpredictable rhetoric and actions have created significant uncertainty and volatility for financial markets, which has reinforced large intraday swings in Brent futures and spreads. This filters into the Dated Brent market, where the financial meets the physical market. Physical differentials have taken a nosedive in line with weaker Brent spreads, falling to negative levels of -$0.18/bbl for the first time since early January. The herdy trading mentality of the Dated market was showcased once again, with the mighty BP, Equinor, Exxon, Gunvor, and Unipec offering a smorgasbord of cargos. Mercuria was, for the most part, alone on the buy side, taking one (many cargos) for the team.

The North Sea physical differential strengthened above $0.80/bbl last week but has since petered out, dropping to $0.69/bbl on 20 Jan. 20 Jan also saw five offers for WTI Midland in the window from Eni, Unipec, Shell and two offers from Gunvor, who interestingly was buying cargoes before this. We saw no bids in the window for the first time since 3 Jan.

The bears had their turn over the festive period, and the Dated Brent bulls have entered 2025 fully locked in. Physical differentials climbed above $0/bbl on 06 Jan, and the direction and momentum of the physical will dictate the market sentiment in the coming weeks. The theme over the Christmas period was bearish, where the physical differential was pressured below $0/bbl. We saw two trade houses and a major offer the prompt weeks, which saw the 23-27 Dec, 30-03 Jan, and 6-10 Jan crater. In addition, a significant buyer had disappeared from the bid side, which was significant. However, the new year has brought in new themes.

There was a battle for the barrels in the North Sea, with Totsa and Trafigura buying heavily and Equinor and Gunvor on the sell side. We have seen this same group of players swaying the flow in the Dated market for a few weeks now. The comparable power in the buying and selling has allowed for the Dated physical differential to move very little. The diff has been oscillating around 100c/bbl for almost a month now, failing to maintain anything 10c above or below a dollar since mid-November.

The physical Dated market remains very strong, with the physical differential remaining in triple figures for around ten days now, at 104c/bbl on 25 Nov. There has been a slight introduction of softness this week as players are pricing in the physical, which is projected to come off into December. In the window, all eyes have really been on Totsa in the past week or so as they have been supporting the physical diff with good cargo buying, potentially for placing into Chinese refineries. There seems a slight unease in the market as they expect this play to end soon and the gap between the physical support and the forward curve, which has seen some softening on expectations of this. We don’t know how much more ammunition they have here, how many more barrels they can buy before the rug is yanked from the market. Talking of Yanks, we are expecting strong US exports in the coming weeks, with Midland cargoes likely flooding the Dated market. How much of this wave Totsa is prepared to buy is another question.

There was an election across the pond last week, but it would be quite a feat of mental gymnastics to immediately connect the results with the Dated Brent market. Yet, the ramifications of Trump’s re-election may have significant implications for Atlantic Basin fundamentals, as we detail in today’s Onyx Alpha trade ideas report. Maybe not quite ‘drill baby drill’, but ongoing growth in US crude production and exports will likely weigh on the WTI/Brent spread, and further weigh on the Dated Brent physical. But in the meantime, the market continues to be topsy turvy. A US physical player has been eager to lock in this arb and fixing their paper deals ahead of time. The HTT (WTI Houston vs WTI Trade Month) has been locked in, alongside the WTI/Brent and freight. Basis risk remains, so we can expect 2025 DFLs to be sold at anytime to complete this process. Indeed, the arb of the deal. Lock in.

The Brent futures market was taut in anticipation and volatility last week as the leak of intelligence about the, at the time, looming Israeli strike on Iran meant that the waiting game would have to continue, and there were fewer clues. The front spreads have been rangebound over the fortnight, and the DFL market has superseded this, allowing for the Dated-to-Lead (DFL vs Brent spreads) structure to swing up. The question for spreads is whether they see the support from the Dated structure ripple through the DTL reverting, or whether the anticipated heavy pressure in the futures structure will strike through the structural integrity of the curve. The physical differential dropped to around 5c on 17 Oct and has gently been implied higher since.