How to track crude re-routing in a fragmented market

Crude re-routing signals rarely appear in headlines first - they show up in arbitrage economics. In a market shaped by geopolitics, freight volatility, and shifting refinery preferences, tracking where barrels can profitably flow reveals demand patterns before physical movements confirm them.

This guide explains how we use arbitrage values to identify crude re-routing in real time, with a focus on the current dynamics reshaping flows into Asia. Our Kpler Arbitrage workspace combines price, freight, and quality into a single forward-looking view to surface re-routing signals earlier than physical flows.

Key terms defined

Before diving into market dynamics, here are essential terms used throughout this analysis:

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Understanding Dubai's market structure: Why Dubai firmed without a supply disruption

Dubai's structure firmed in early February - not because of a major supply disruption, but because buying patterns are quietly changing. As Indian refiners continue to adjust crude slates in response to geopolitics, freight, and relative value, the clearest signals appear in arbitrage economics rather than outright price moves.

In a market that remains well supplied, arbitrage values - combining price, freight, and quality - reveal where demand is forming and where it is fading.

The backwardation signal

Dubai's prompt structure reversed sharply into backwardation recently. The two-month spread moved to around +80¢ after averaging close to -20¢ in late January. This shift stems from buying behaviour rather than supply outages. Indian refiners continue to trim Russian Urals intake and lean more heavily on Middle Eastern alternatives.

Arbitrage values explained: What drives arbitrage economics

Arbitrage values combine three core components:

• Price differentials between origin and destination benchmarks
• Freight costs along the relevant shipping route
• Quality adjustments reflecting refinery yield and processing requirements

When these factors align favourably, trade flows follow. When they diverge, barrels seek alternative destinations - or sellers adjust pricing to clear inventory.

How arbitrage signals appear before physical flows

Within the Kpler Arbitrage workspace, users can select Middle Eastern grades such as Basrah Medium, Oman, or Murban and compare forward arbitrage values into West Coast India across the forward curve - up to six months ahead. Improving arbitrage economics into India shows where substitution demand is materialising, even as headline OSPs lag the move.

The workspace consolidates forward curves, freight, and quality adjustments so users see where economics tighten before flows change.

The signal strengthens when comparing arbitrage values against refinery margins. Middle Eastern grades remain economically workable for Indian refiners adjusting feedstock blends rather than replacing Urals outright. This explains why Dubai has firmed despite a broadly comfortable supply backdrop.

India's crude diversification: a case study in landed economics

The blending strategy

India's pivot away from Russian crude unfolds gradually and compositionally. Recent purchases point to a blending strategy:

• Heavier barrels such as Venezuelan crude provide the base
• Lighter components including Murban, WTI Midland, and select West African grades balance the slate
• The target: maintaining CDU intake in the low-30s API range

Why landed values matter more than FOB prices

This dynamic appears most clearly in landed values rather than flat price differentials. In the Kpler Terminal, users can set the destination to West Coast India and compare delivered costs across grades to see how blending economics evolves as freight rates and regional differentials move.

That landed view makes substitution and blending economics immediately comparable.

Grades to compare for Indian blending economics:

• Murban (UAE)
• WTI Midland (US)
• Castilla (Colombia)
• Nemba (Angola)

These comparisons explain why certain grades continue to flow into India even when outright pricing appears stretched. For refiners, relative landed value - not just FOB pricing - determines what fits into the slate.

The Brent-Dubai EFS: reading the Atlantic-Asia balance

Current EFS dynamics

Dubai has firmed on improved spot demand, but the Brent side has done most of the moving recently. This is largely due to the US-Iran tensions , whereby geopolitical risk is reflected more in the liquidity of a futures market like ICE Brent. This shift is reflected in delivered economics.

West-to-East arbitrage remains closed

Comparing landed values for Brent-linked grades into India's west coast with regional reference barrels such as Murban and Oman shows that West-to-East economics remain effectively closed. Two factors keep the arbitrage constrained:

• The elevated Brent-Dubai spread prices Brent-linked barrels at a premium to Dubai-linked alternatives
• Freight has lifted delivered costs significantly

This framework helps isolate whether spread moves stem from regional demand shifts, freight changes, or relative grade availability - rather than treating the EFS as a standalone indicator.

Freight's role in market dynamics: The decisive arbitrage variable

Freight has become the dominant constraint across several key routes:

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Kpler's integrated freight inputs display how rate moves flip route economics in real time.

How freight flips arbitrage values

By switching between routes - for example, USGC to NWE versus USGC to India - users see how rising freight flips arbitrage values from marginally positive to decisively negative. Forward views help identify:

• When routes may reopen
• When sellers will need to adjust differentials to clear barrels

This proves particularly relevant for West African grades, where softer European demand and high freight force pricing adjustments - even as some grades begin to look more workable into India on a blending basis.

Frequently asked questions

What factors influence arbitrage values?

Four primary factors determine arbitrage viability:

• Benchmark spreads between origin and destination pricing
• Freight rates on the relevant route
• Quality premiums or discounts based on API gravity, sulphur content, and yield characteristics
• Refinery margins at the destination, which determine willingness to pay for specific grades

How do freight rates impact crude pricing?

Freight acts as a tax on distance. When rates rise sharply - as they have on West Africa-Asia routes - sellers must either:

• Accept lower netbacks to maintain competitiveness
• Redirect barrels to closer markets
• Wait for freight to normalise

Rising freight effectively shrinks the competitive radius for any given crude grade.

Why track arbitrage instead of physical flows?

Physical flow data is inherently backward-looking - it shows where barrels went, not where they will go. Arbitrage values provide a forward-looking view of where trade routes may respond as conditions change. Economics tighten or break first, often well before those shifts appear in physical trade data. Kpler's arbitrage views provide precisely that early read.

Turning arbitrage signals into market views

Together, these arbitrage signals support several clear market conclusions:

• Dubai structure remains supported, driven by Urals displacement rather than outright supply tightness
• Brent-Dubai EFS remains biased lower, as Atlantic Basin economics continue to weaken
• West African barrels may see selective demand into India, but pricing and freight will remain decisive

Arbitrage values do not predict flows in isolation, but they define what is economically viable as refinery behaviour evolves. In a market shaped by incremental adjustments rather than major disruptions, that distinction matters.

Summary: why arbitrage is the earliest signal

In today's crude market, price alone rarely tells the full story. Arbitrage values bring together price, freight, quality, and refinery fit - offering a forward-looking view of how trade routes may respond as conditions change.

Key takeaways:

• Dubai strength reflects substitution demand from India, visible first in arbitrage economics
• Landed values - not FOB prices - determine which grades fit into refinery slates
• Freight has become the swing variable, opening or closing routes as rates fluctuate
• The Brent-Dubai EFS signals relative Atlantic versus Middle Eastern competitiveness
• Forward arbitrage views identify route openings before physical flows confirm them

By surfacing these dynamics early, the Kpler Arbitrage workspace allows users to move beyond backward-looking flows and focus on where economics are tightening or breaking first.

Learn how Kpler's Arbitrage workspace can help you track crude re-routing in real time.

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