Brent-Dubai spread components and applications as well as forecasts
The Brent-Dubai spread is a group of derivative instruments widely used in the international crude oil market,mainly for price locking and benchmark price conversion.This paper introduces in detail the nature,characteristics and settlement period of the main oil benchmarks involved in the Brent-Dubai spread system and explains the underlying logic of the operation of the two spread swap contracts of BD EFS and BDSS,which means the relative strength of the crude oil spot market in the Eastern and Western hemispheres actually determines the widening and narrowing of the BD EFS and BDSS.It also introduces how BD EFS and BDSS are used to lock prices and convert benchmark prices in the actual crude oil procurement business through two specific virtual cases.Through these two cases,it is shown that correctly predicting the widening or narrowing trend of BD EFS and BDSS is crucial for successful hedging with the two derivative contracts.Therefore,it is necessary to pay close attention to analyzing and predicting the relative strength and weakness of the crude oil spot market in the Eastern and Western hemispheres to forecast the widening or narrowing trend of BD EFS and BDSS,so as to make full use of these two derivative spread instruments to reduce the crude oil procurement costs of industrial market participants.
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