Interesting opportunities from constant change

Deep Dive Summary:

• Murban Futures, the light (crude futures) fade to black.
• Massive margins allow Atlantic Basin refiners to diversify supply.
• New lows at Cushing keep WTI stateside,

The noose continues to slowly tighten as global demand exceeds supply, and tension is slowly building within some key exporting countries as their own inventories are becoming dangerously low. At a high level (or a small enough position), the winning trade should be to just go long.

However, Brent futures saw a nearly $32/bbl range in the month of July, the second largest monthly range since the war kicked off in March. Even a strategy as simple as a call option, $10–$15/bbl in the money at the end of last week, expired $1/bbl out of the money this week, and all without a meaningful change in AG/Red Sea flows.

ADNOC’s decision this week to transition away from physically delivered Murban futures and toward Platts Dubai monthly cash-settled futures is significant for two reasons. In theory (and hinted at in previous OPEC meetings), anyone with a futures account could try to push around the price of Murban futures whereas the net that Platts casts is much more limited to transactions in the physical markets,

Final settlement

In respect of final settlement, the Floating Price will be a price in USD and cents per barrel based on the average of the mean of the high and low quotations appearing in “Platts Crude Oil Marketwire” under the heading “Key benchmarks ($/bbl)” for “Dubai” prompt month for each business day (as specified below) in the determination period.”

[Details on ICE Dubai Futures contract specifications]

Platts also uses a variety of UAE grades in their daily assessments of Dubai Crude:

“Dubai: Platts Dubai assessments reflect market activity in Dubai partials and full cargoes. Platts Dubai assessments take into consideration partials trading activity from market participants only if they are willing to accept or declare a cargo of Dubai crude or alternate delivery of Upper Zakum, Oman, Al Shaheen or Murban crude with a Quality Adjustment upon convergence to a full cargo.

The seller must declare the grade at the point of execution of the 20th partial trade with the buyer. Platts publishes daily outright Dubai assessments for cargoes loading two (M+2), three (M+3) and four (M+4) months from the month of publication, as well as a spread between benchmark Platts Dubai (M+2) versus same-month Dubai futures.”

[Methodological details from Platts Asia Pacific and Middle East Crude Oil Specification guide, July 2026]

For quite a long time, the market has looked at Murban futures as a South-of-Hormuz, Fujairah-pricing benchmark, while Dubai futures were considered North-of-Hormuz despite Platts clarifying that:

“Effective March 2, 2026, Platts has suspended nominations of crude oil grades that require ships to transit the Strait of Hormuz (Dubai, Upper Zakum, Al-Shaheen, or Murban cargoes loading from Jebel Dhanna) upon convergence of Platts Dubai crude partials contracts traded during the Platts Market on Close assessment process, until further notice.”

[Methodological details from Platts Asia Pacific and Middle East Crude Oil Specification guide, July 2026]

The market still tends to view the Murban/Dubai spread as a reflection of how easy or not it is to get cargoes out of the AG. The circular ADNOC released on Friday about the switch towards a Dubai futures pricing structure also says they will de-list Murban futures contracts with zero open interest.

(ICE Murban Crude Oil Futures, note open interest in right-hand column)

As of Friday, there was only 1.2 MB and 1.6 MB worth of open interest in the November and December contracts respectively. To Sparta, it seems the days of the Murban contract are numbered.

If Hormuz remains restricted by the time ADNOC makes the change, then we will lose a valuable insight not only into AG market dynamics, but a quasi ‘sweet/sour’ spread as well. We could also see decline in activity in the Dubai futures as well at least from the hedging side once the Murban futures are gone.

The ongoing restrictions of flow through Hormuz and Bab al-Mandab are giving us some interesting arb opportunities.

Our crude arbs dashboard is showing WC Americas grades as the top four crude grades delivered into complex refineries in the Far East for October, with Basrah Heavy rounding out the top five.

Likewise, four of the top five crude grades delivered to simple Far East refineries also come from the Americas with a single Nigerian grade landing in the number three slot.

For the same mid-October delivery date, WTI and most of the North Sea grades are showing negative simple refining margins. While WTI at least registers a positive complex margin, it is so far down the list as not to be a serious contender.

These West Coast Americas grades commonly trade into the Far East and Southeast Asian markets, which is nothing new, but their high value rank is somewhat surprising. The big AG NOCs may well elect to further reduce OSPs in Q4 to make their grades a little more competitive, or the Dubai benchmark on which the OSPs are based will need to move lower relative to US benchmarks.

If AG flows remain constricted in August and September, the latter option may be very difficult, making the former a more practical solution.

(Highest complex margins in Far East are driven by grades from West Coast Americas)

Moderately priced freight from WC Americas is also helping the grades land in the Far East competitively. The eventual return of normal flows from the AG requires a steady stream of VLCCs, leaving fewer vessels available for a trans-Pacific run. The resulting increase in freight for these WC Americas voyages will eat into margins.

The best complex refining margins in NWE for mid-October come from a combination of North Sea and West African grades. As seen in Asia, WTI does yield a positive margin but there are dozens of other crude streams that offer much better returns.

WTI exports remain challenged by both high freight (to both NWE and Far East), and strong backwardation in CL futures. If anything, the backwardation in the front of CL is showing a little restraint in the context of Cushing inventories; stocks are at 12-year lows, but more importantly, utilisation levels are the lowest in our dataset [going back to 2011].

As we alluded to last week, 2–3 mb/d of ‘swing exports’ remain at risk because of critically low inventories. Typically, October refinery maintenance offers a chance for inventories to recover a little in the shoulder season.

As we have seen, the US market is currently pricing exports to be at a minimum through prime maintenance season. The Brent market is currently seeing an even larger backwardation than CL futures. In fact, when we exclude local production in the North Sea, it would take 100% of the volume produced by grade of the top eight listed crudes (mostly WAF grades + Maya) to exceed the 2 mb/d of spare export capacity that is currently priced out of the market.

While we are not suggesting that NWE could draw 100% of Maya production, we are trying to contextualise the magnitude of the decline in US exports since the peak in terms of non-AG sourced supply. Conversely, this may be the best time in decades for refiners to start experimenting with slowly introducing new grades into the crude slate given how solid margins look.

We remain bullish the complex simply from a missing barrels perspective. Any sort of long-term flat price strategy is likely untenable due to the tremendous swings.

WTI/Brent will need to widen back to levels seen in April to force the USGC to NWE arb open again. We also remain bullish Q4 Mars basis.

By October, US SPR releases will be finished, and returns can start as soon as November. Furthermore, USGC medium grades need to go back to pricing to attract diesel-rich global import grades.

About the Author
Aaron Kildow | Crude Commodity Owner, Sparta Commodities
Aaron is Sparta’s Commodity Owner for crude, covering physical and financial oil markets, hedging structures, and customised oil balances. He co-founded The Oil Balance and spent over a decade at Macquarie Group building supply/demand models for Cushing, PADD 1, and PADD 3, with earlier trading and derivatives roles at CHS, Musket Corp., and Prudential Financial.
 Connect: LinkedIn

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