Singapore: Middle East crude is under pressure as the front-month Brent/Dubai spread was assessed at its lowest level in a year and a half yesterday, which could open the arbitrage for Urals crude to Asia, traders said.

The March Brent/Dubai Exchange of Futures for Swaps (EFS) was assessed at between $2.95 and $3.15-a-barrel, though no trade was heard at these levels yet.

The front-month EFS has consistently been discussed and traded above $3.00 since end-July 2004.

The April EFS, which is expected to gain in importance as the March IPE Brent contract approaches expiry on February 13, was seen at around $3.60/3.70 a barrel.

With freight costs off the strong levels discussed during the fourth quarter, the arbitrage to move Russian rival sour Urals crude to Asia could open, traders said.

Two million barrels a month of Urals crude are regularly shipped to China, under a term contract, and Chinese trader Unipec has the flexibility to take higher volumes.

But traders said it was too early to say whether Urals crude would flow to Asia.

"We are heading toward a heavy turnaround period. Freight from the Middle East is really low and differentials for Middle East crude are under pressure," a seller said.

The weaker EFS, coupled with falling refining margins, and heavy refining maintenance, pushed Middle East sour crude benchmark Oman firmly into a discount to its official selling price (OSP).

An April-loading cargo was sold on Tuesday at a 3-cent discount to MoG by a European major to a US trader, traders said. The grade was bid at a 12-cent discount on Wednesday morning.

March Brent stood at $61.25 at 0439 GMT, down almost $2 from around the same time on Tuesday on forecasts for rising oil stockpiles in the United States.