VLSFO crack against Dubai remains supported as low sulphur feedstock was partially diverted to the west of Suez, reinforced by tightening blendstock as refiners optimize Middle Distillate yields for better margin. Meanwhile, weak bunkering demand in Singapore due to elevated fuel oil prices has weighed on HSFO, despite loss of Russia supply due to Ukraine’s drone attacks and summer cooling demand in Middle East and Egypt. The price outcome of the split was a 44% blowout in the Hi-5 to a $114.93/mt average.
Market Activity
- Physical VLSFO buy-skew intensified to 3.88:1 (365 bids vs 94 offers) from April's 1.63:1, on 18 trades / 560 KT (20 / 500 KT prior). The move was offers collapsing (193 → 94) while bids firmed, the clearest physical signature of blendstock tightness: sellers withdrawing cargoes as Dangote feedstock diverted west of Suez and refiners pushed blendstock into secondary units for distillate yield. Larger clips (~31 KT vs ~25 KT) lifted volume despite fewer trades.
- Physical HSFO flipped to offer-heavy at 0.60:1 (112 bids vs 188 offers) from April's 1.10:1; offers nearly doubled (104 → 188) while bids held flat, on 18 trades / 360 KT (20 / 460 KT prior). An offer surge into flat bids reads as length reduction and weak prompt demand, consistent with soft Singapore bunkering at elevated prices.
Price Action
- VLSFO held its rally: avg $798.41/mt (+8.5% MoM, +62.9% YoY), peaking $854.54/mt on 18 May before a −7.3% W4 pullback that held above April's $643 floor.
- HSFO peaked early ($739.21/mt, 6 May) then declined steadily to close at the monthly low $628.72/mt (−11.0% MoM on the close), the mirror image of VLSFO's mid-month strength.
380cst HSFO FOB Cargoes (USD/MT)
0.5% VLSFO FOB Cargoes (USD/MT)
Cross-Market Dynamics
- VLSFO crack vs Dubai averaged $22.00/bbl, more than double April's $10.17, high $26.68 (18-May), due to VLSFO blendstock scarcity (Dangote diversion plus distillate-yield optimisation).
- HSFO crack vs Dubai flipped to a +$3.93/bbl average from −$2.38 in April but eroded through the month: high +$12.72 (06-May), close −$3.96 (29-May). The early spike priced the Russian-supply disruption and cooling-demand bid; the fade reflects weak Singapore bunkering capping the grade.
- Hi-5 (VLSFO−HSFO) widened from $79.68 to $114.76/mt (high $136.82, 26-May), the month's defining cross-grade move: VLSFO tightening while HSFO lost prompt support.
Cross-Regional Dynamics
- Fujairah's HSFO discount to Singapore narrowed through May as Gulf cooling demand firmed; VLSFO blendstock pulled to west of Suez.
- HSFO Fujairah−Singapore discount narrowed within May from −$81.95/mt (04-May) to −$52.81 (29-May), Gulf HSFO firming relative to Singapore as Middle East and Egypt cooling-season imports pulled regional barrels; the wider May average (−$56.06 vs April −$47.61) reflects the deep early-month discount, not the month's direction.
- VLSFO flow ran the other way: Dangote feedstock cargoes partially diverted to west of Suez, tightening the eastern blendpool.
Curve Structure
- Both curves fell on the crude-led retreat, but M2 dropped hardest (HSFO −$35, VLSFO −$43), tightening front M1-M2 backwardation on both grades as the Straits of Hormuz passage remains limited.
- Back-end backwardation eased for both curves, with the prompt tenors held relative to near-deferred despite the sell-off, consistent with physical tightness (VLSFO blendstock, HSFO cooling pull) sitting at the front.
0.5% VLSFO swaps (USD/MT)
380cst HSFO (USD/MT)
Price Volatility
- HSFO CV 5.07% and VLSFO 4.18%, both down from April and well off the March peak (13.00%, 15.28%); the post-March elevated regime persists at ~3x the Dec-Feb baseline even as it cools.
- VLSFO CV fell below HSFO for the first time since December despite VLSFO's larger directional move; the May weakness was orderly, not gappy. Hedging models can step down from the March crisis calibration but should not revert to the winter 1.5 to 2.5% range while blendstock and Russian-supply uncertainty persist.
Something to Watch
- HSFO crack against Dubai is expected to be supported by Middle East and Egypt summer cooling season demand and tightened Russian supply, unless shipping reverts to normal at the Straits of Hormuz.
- Dangote reportedly cut the run rate for its RFCC unit, more LSSR supply is expected from the key low sulphur fuel oil supplier.
Note: All figures, prices and market activity referenced in this report are based on the period 1-29 May.
