Dated v Brent

Despite buying Forties at the start of the week last week, Vitol disappeared from the North Sea window. Following this, the window dwindled to a lull mid-week, with no bids or offers placed for the first time since April 2025. This quiet continued through the week and was finally broken by BP offering Ekofisk for 06-08 Nov at +$1.30/bbl. This afternoon, Glencore offered WTI Midland for 2-6 Nov and 9-13 Nov at $1.40 and $1.70 + Dated, respectively, pushing the physical differential 13.5c lower to 49c.

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For all the talk about a crude oil glut that has not been reflected yet in flat price, North Sea traders might agree, as back-end September-loading cargos are seriously struggling to clear. Physical differentials remain in the negatives, with various majors and trade houses on the sell side of the physical. From a fundamental perspective, the weakness in the Atlantic Basin has been attributed to greater growth in non-OPEC supply, despite OPEC+ supply hikes. Proponents of the roll-down trade would’ve been well rewarded, with each week flipping into contango, unable to match the implied physical differential.

The Dated Brent market saw a volatile week, with the North Sea physical differential falling negative for the first time since May. There was a supply glut in the front, with WTI Midland cargos struggling to clear. However, the start of this week created better optimism for the bulls with flows becoming two-way. Monday saw Glencore on the buy side of Midland, Forties, and Brent in the physical window. Meanwhile, Vitol was the dominant player in the expiry, buying 10x November EFPs and 10x Oct/Nov cash. The day highlighted their aggressive positioning, stronger late-session BFOETM pricing, and consistently firm EFP demand.

A persistent trend in the Dated Brent complex this month has been one-week rolls selling off into pricing, revealing that the strength implied in the curve fails to materialise in the physical. Aligning with this, we saw significant 18-22 Aug vs Cal Sep buying last week and over the past couple of days; however, the 18-22 Aug one-week roll fell from printing +$0.37/bbl at the end of last week to negative at the start of this week, although it is now bid at +$0.10/bbl.

While outright values suggest that the physical market is tight, whether or not this translates to a bullish market is a subjective matter. Notional values are high, but CFD rolls continue to roll down weekly. The 21-25 July 1-week roll is down from $0.50 to $0.10/bbl, and the 28-01 Aug 1-week roll is down from $0.45 to $0.30/bbl. The culprit? A relentlessly strong physical market. The market is implying forward differentials at stratospherically high levels, so even if the physical strengthens, it is insufficient, weakening the CFD rolls. As it stands, early August weeks are pricing above $1/bbl. The 21 July physical window was constructive, with the physical rising from $0.69 to $0.77/bbl, but there are still ways to go.

While outright values suggest that the physical market is tight, whether or not this translates to a bullish market is a subjective matter. Notional values are high, but CFD rolls continue to roll down weekly. The 21-25 July 1-week roll is down from $0.50 to $0.10/bbl, and the 28-01 Aug 1-week roll is down from $0.45 to $0.30/bbl. The culprit? A relentlessly strong physical market. The market is implying forward differentials at stratospherically high levels, so even if the physical strengthens, it is insufficient, weakening the CFD rolls. As it stands, early August weeks are pricing above $1/bbl. The 21 July physical window was constructive, with the physical rising from $0.69 to $0.77/bbl, but there are still ways to go.

The geopolitical risk premium may have faded, but the continued rally in Brent structure highlights the market’s resilience. Futures spreads have been on a steady upward trend since the beginning of May, with Sep/Oct Brent strongly backwardated above $1/bbl (time of writing). The market has fundamental strength, with strong refinery margins that are a driver of crude demand. Resurgent distillate strength took the market by storm, but something has to give. Product cracks would eventually correct lower on account of higher production. At the same time, hot temperatures across Europe and heat-related disruption would force refiners to cut their run rates, tempering crude demand. Nonetheless, Forties saw buying from Chinese players (Petroineos and Unipec) in the physical window, taking advantage of momentary Dated weakness and Dubai strength to fix arbs into Asia potentially.

It was quite the turnaround in Brent this week. Markets did a quick 180 as Middle East tensions de-escalated following Iran’s telegraphed attack at a US military base in Qatar, in retaliation for American strikes against its nuclear sites. The geopolitical risk premium popped like a balloon. Bullish momentum was already waning before that, given the market’s muted reaction on Monday’s open, alongside the presence of Eni and Shell in the physical window, selling Forties. So synchronised were the directions of Brent futures and Dated. The futures rally on 13 June magnified the squeeze on deliverable supplies in Cushing, tightening the market and buoying Total’s bids in the North Sea physical. DFLs were sent to the stratosphere, with Jul’25 touching $2/bbl. But as the old adage goes, what goes up must come down. Since the geopolitical risk deflation on 23 June, Brent spreads and DFLs are back to square one, before the geopolitical rally.

The forward curve is implying weaker, especially the prompt week of 30-04 July. Glencore joined in on the selling party on 24 June, offering Midland, while BP put a Midland cargo into chains, the first of the month. We expect this trend to continue, but the fate of the prompt rolls will depend on how much the physical weakens, forming a basis for our dual trade idea. The front (July rolls) are slightly oversold, while the back (August rolls) is more overbought. Even at lower levels, there is a lack of buying, apart from refiner bids. As Dated weakens, it may be more difficult to fix arbs from the US to Europe, especially amid higher freight rates. Demand outlets would need to come from Chinese players lifting Forties, which is currently setting the curve. Stronger refinery margins may provide renewed support, especially as we’ve observed hedge selling flows of cracks with the refinery margins forward curve shifting noticeably higher.

However, the market is more risk-off, given the elevated, headline-driven volatility recently. Despite our cautiously bearish views, renewed geopolitical headlines could see another upside breakout and volatility spike. Open interest is above average in Jun’25 contracts, but is trending in line with the 5-year average in Jul’25, underscoring the relatively subdued interest by the market. The question now becomes, how low does Dated Brent go? Prices have retraced below pre-event rally levels, but remain high on a notional basis. There is room to go longer, but are we approaching a consolidation?

Well, the bull run did happen, and it was the perfect storm. Peak summer demand. Backwardated prompt spreads. Refineries are back from maintenance. Gold rush. The Dated structure saw a good rally with Total bidding the physical, and the June and July DFLs surpassed $1/bbl, and the bulls were rewarded for their patience, with the recent run likely funding their summer holidays. The rally was well telegraphed, but we do not think the rally has a further leg up, and hold a cautiously bearish view in the short term as the bulls fade out. The 16-20 Jun week is implied at nearly $1/bbl in the physical, but the bulls are in no rush, with the market seemingly happy with the $0.80/bbl level in the physical differential. Despite continued bids from Total and friends, we see this as an attempt to support the physical, rather than to push it higher. Whilst strong buying in the paper was seen on 6 June, it was not by the players with the ability to move the physical. With prompt weeks implying higher than the physical, rolls could roll down and see selling into pricing.

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.