August Pricing Analysis - European Fuel Oil

SUMMARY

HSFO 3.5% FOB ARA Barges averaged $493.61/MT in August, up 5.99% MoM and 23.47% YoY; VLSFO 0.5% ARA Barges averaged $605.80/MT, up 2.47% MoM and 32.62% YoY. The move traces to low water levels on the Rhine: the Kaub gauge fell to 16cm by 10-Aug, capping barge loadings near 15-20% capacity and stranding roughly 707,000mt of fuel oil in ARA tanks, which drove VLSFO's largest single-day move (+$23.00/MT, 10-Aug) and HSFO's monthly high (+$38.50/MT to $553.25/MT, 18-Aug), and held both curves in backwardation. The Hi-Lo spread compressed 10.6% MoM to $112.19/MT as HSFO's spike briefly outran VLSFO, but at nearly double last August's $57.01/MT average it still reflects ongoing VLSFO blendstock scarcity (diesel-yield prioritization, a sourer Mediterranean crude slate). ARA's discount to Singapore blew out on both grades (-$82.39/MT HSFO, -$131.75/MT VLSFO) as Rhine barrels stayed stranded locally, even as roughly 394,000mt of Americas HSFO imports kept ARA supplied and flipped the ARA-USGC spread to a $61.10/MT premium.

MARKET ACTIVITY

• 204 executed trades against 778 bids and 403 offers (bid/offer ratio 1.93:1)
• Intermediary selling concentrated in one name: Glencore Energy UK Ltd took 95 of 204 trades (47%), ahead of bp Netherlands (44) and Vitol (24); as a trading house this reads as positioning/flow, and lines up with ARA fuel oil imports averaging 363,000 b/d, more than double July's 159,000 b/d
• Vitol appeared on both sides (24 sell-side, 18 buy-side), as did Trafigura (10 sell-side, 16 buy-side); consistent with intermediary positioning rather than one-way flow
• Buy-side was distributed across bp Netherlands (34), Shell Trading Rotterdam (31) and TOTSA (20), consistent with majors and trade houses covering bunker and blending needs into the rally

PRICE ACTION

HSFO 3.5% FOB ARA Barges

VLSFO 0.5% FOB ARA Barges

CROSS-MARKET DYNAMICS

• HSFO crack vs Brent futures averaged -$11.87/bbl in August vs -$10.77/bbl in July and -$4.98/bbl a year ago (-$6.89 YoY), underperforming crude even as Brent rallied
• VLSFO crack held near flat at +$5.07/bbl in August vs +$5.29/bbl in July and +$4.46/bbl a year ago

• Brent Dated averaged $90.94/bbl (+9.0% MoM) but closed at $89.71/bbl, down from July's $96.22/bbl close: crude was firmer early in the month than at the close, so HSFO's widening crack was fuel oil-specific, not a crude effect
• Hi-Lo spread averaged $112.19/MT in August vs $125.48/MT in July (-10.6% MoM) but $57.01/MT a year ago (+96.8% YoY); the YoY gap reflects VLSFO blendstock scarcity (diesel-yield prioritization, a sourer Mediterranean crude slate), while the monthly compression came in one session: Hi-Lo fell $27.50/MT (-29.6%) on 18-Aug as HSFO's jump wasn't matched by VLSFO

CROSS-REGIONAL DYNAMICS

• ARA-Singapore HSFO spread widened from -$31.16/MT to -$82.39/MT as Singapore HSFO rallied 15.9% MoM ($496.89 to $576.00) against ARA's 6.0%: physically constrained by the Rhine bottleneck, ARA could not participate in the wider tightening
• ARA-Singapore VLSFO spread widened from -$77.85/MT to -$131.75/MT as Singapore VLSFO rose 10.2% MoM ($669.06 to $737.55) against ARA's 2.5%
• ARA-USGC HSFO spread flipped from +$1.43/MT to a +$61.10/MT ARA premium as USGC HSFO fell 6.8% MoM ($464.30 to $432.51), consistent with the Americas-to-Europe arb (~394,000mt expected from Venezuela, Colombia and Mexico) pulling barrels toward NWE and keeping ARA supplied even as the Rhine constrained internal distribution
• The same bottleneck showed up port-side: VLSFO Barges' discount to VLSFO bunker Rotterdam swung from -$113.00/MT (4-Aug) to -$18.00/MT (10-Aug), a $95/MT move in four sessions, as scarce FOB parcels rose toward the delivered bunker benchmark

CURVE STRUCTURE

VLSFO

HSFO

• Both curves stayed backwardated (M1 above M12) at the start and end of the month; against the default mild contango, this is the signal, consistent with Rhine-driven scarcity for prompt barges
• HSFO's shape barely moved while the whole curve shifted up in parallel (M1 +$29.00, M12 +$28.00): a parallel bull move that preserved backwardation, not a clean squeeze or steepening
• VLSFO's front flattened (M1-M2 -$9.25, the largest spread move in the complex) while M1-M12 held near $89-91/MT; with both grades backwardated, carry does not pay, and a return to contango at the front would signal the logistics squeeze has cleared

PRICE VOLATILITY

• VLSFO's 2.92% CV is the lowest of the past six months; HSFO's 5.56% dropped sharply from July's 9.34% and June's 12.90% peak
• HSFO's largest daily move in six months (+$38.50/MT, 18-Aug) landed inside its calmest month of the period since it reversed within days; hedging models on the full-month CV would understate the intra-month risk actually realized

SOMETHING TO WATCH

• Rhine water levels (Kaub gauge):
  • Observation: Kaub fell to 16cm by 10-Aug, capping barge loadings near 15-20% capacity and stranding roughly 707,000mt of fuel oil in ARA tank storage
  • Why it matters: continued restrictions sustain backwardation and spikes like 18-Aug's; a river recovery would free stranded barrels and extend VLSFO's M1-M2 unwind
  • What to monitor: daily Kaub readings; ARA barge loading rates; the M1-M2 spread for a move back toward contango
• Hi-Lo spread, structural widening vs monthly compression:
  • Observation: Hi-Lo closed August at $118.75/MT, down from July's $148.50/MT close but still more than double August 2025's $57.01/MT average
  • Why it matters: persistent VLSFO blendstock scarcity should re-widen the spread once the Rhine-driven HSFO spike fades; compression toward the 2025 range would signal the scarcity story resolving
  • What to monitor: weekly Hi-Lo close; the Singapore Hi-Lo spread (multi-year high on 3-Aug) as a leading indicator
• ARA-Singapore arb and the Americas HSFO flow:
  • Observation: ARA's discount widened to -$82.39/MT (HSFO) and -$131.75/MT (VLSFO) while holding a +$61.10/MT premium to USGC HSFO
  • Why it matters: a discount this wide would normally pull ARA cargoes east; that it hasn't reflects Rhine barrels trapped locally rather than a lack of arb incentive, while the Americas flow is the supply side keeping ARA HSFO from tightening further
  • What to monitor: eastbound ARA-Singapore cargo flows once Rhine levels normalize; the USGC-ARA spread for continued Americas arb flow

Note: All figures, prices and market activity referenced in this report are based on the period covered by this monthly update.

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