(Bloomberg) -- A closely watched spread that shows the price difference between Europe and Middle East crude has more than halved in the space of ten days as weaker demand from Europe’s oil refineries finally bites.
The premium of Brent oil futures to Dubai crude swaps, also known as Brent-Dubai exchange of futures for swaps, dropped to $1.54 a barrel on Friday, according to PVM Oil Associates data. This compares with $3.67 on Aug. 30, which was the highest since October. When it narrows, oil priced relative to Brent becomes more attractive to refineries in Asia.
The strength in Brent was partly due to a loss of Libyan crude and tensions in the north African country. But with the looming prospect of a return of those flows, the North Sea market is finally giving way to a bleaker demand picture. On Monday, Forties and Ekofisk - two of six grades that set the global benchmark Dated Brent - were offered at about 50 cents less than recent deals, but no buyers emerged.
Profits from making diesel, a key market for Europe’s oil refiners, remain miserable. Margins from the fuel plunged to 15-month low in late August, and have yet to recover much since then.
Meanwhile, some European refineries have entered maintenance season, lowering their demand. There have also been some unexpected shutdowns, including at the giant BP Rotterdam refinery.
The weakening in Brent may attract buying interest from Asia for Atlantic Basin grades, especially Nigerian crude.
Sales of the African country’s barrels have been slow recently, with some September cargoes still available while most October shipments unsold, said traders involved in the market.
The EFS spread rose slightly to $1.65 on Tuesday. Futures have slumped almost 20% since July.
--With assistance from Bill Lehane.
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