SINGAPORE: The price gap between Atlantic Basin sweet crude against Middle East sour grades hit its narrowest since 2010 on Monday and is likely to spur traders to ship more low-sulphur oil to Asia while OPEC cuts production.
Front-month Brent crude's premium to Dubai, or the exchange of futures for swaps, dropped to 55 cents a barrel on Monday, the narrowest between the two crude oil benchmarks since June 2010, according to trade sources and Reuters data.
In the cash market, the May spread for dated Brent and Dubai swaps was valued at 24-30 cents a barrel, down nearly $1 from a week ago, traders said.
"It's really collapsed these last few days," a Singapore-based trader said.
The Brent-Dubai spread has been narrowing since the Organization of the Petroleum Exporting Countries (OPEC) and some other producers decided in November to cut output for six months from January.
The narrow price gap and rising shale oil production in the United States have opened up new trade flows such as Russian Urals crude to South Korea and US sour crude to North Asia.
Esitmated crude shipments from Europe to Asia hit an all-time high of 55.4 million barrels in April, with flows in the first four months up 9 percent from the same period a year ago, according to Thomson Reuters Eikon data.
The flows will continue as OPEC is expected to extend its production cuts for another six months, allowing Asian refiners to increase purchases of low-sulphur oil from Europe and Africa and shift away from their Middle East crude staple.
Oil is also being released from storage as the contango market structure has disappeared, keeping the market well-supplied.
With ample supplies, Asian buyers can pick cargoes and negotiate prices at their own pace, adding further pressure on the global market as stocks build.
"Inventories are not as tight as we initially thought," a trader with a North Asian refiner said.
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