That is, Dubai EFS crude — rather than the emirate itself — is worth more than you think.
As Morgan Stanley highlighted in its commodity outlook for 2010, Dubai crude, which historically traded at a discount to Brent crude due to its heavier and sour quality, has managed to trade at a premium to Brent on several occasions in 2009.
Here’s the chart:
The investment bank predicts this will happen with even more consistency in 2010, as light-heavy spreads stay narrow and Asian refinery capacity continues to ratchet higher against lower US and European refinery throughput.
As they explain:
The IEA is expecting Asian crude demand to eclipse North American in early 2010, we see no reason to disagree with this forecast. Not only is the volume of Asian refinery capacity increasing rapidly — we count almost 1 mmb/d of incremental CDU capacity coming on line in Asia in 2010 — but the high complexity of the new refineries is also quickly eroding Brent’s quality premium.
And here’s a chart showing just how impressive that surge in Asian refining has been this year:
Nothing bullish in crude – FT Alphaville
Not just a refinery, a super refinery – FT Alphaville
Why refinery shutdowns matter - FT Alphaville
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