May Pricing Recap - European Fuel Oil

HSFO 3.5% FOB ARA Barges averaged $599.65/mt in May (+6.0% MoM, +51.2% YoY), but flat price is not the read: it fell 2.6% open-to-close as Brent eased from roughly $117/b toward $106/b. The story is the heavy/sour tightening from the Strait of Hormuz disruption, which removed heavy-sour crude and HSFO flows directly (around 87% of the ~580kbd of Hormuz fuel oil transit was HSFONakul Bakul) and forced HSFO to outrun crude: the crack to Brent improved $19/bbl to -$9.12/bbl, roughly 5x the VLSFO crack's move, while both curves held backwardation against their mild-contango default and the Hi-Lo stayed entirely sub-$80/mt.

The late-May turn (W4 -7.6% WoW, backwardation narrowing, CV collapsing to 3.80% from March's 10.08%) is the same driver reversing as the market priced the reopening the EIA assumes for June. The binary ahead is the Hormuz timeline: confirmation collapses the crack back toward April's -$28/bbl and flips the curve to contango; a stall re-tightens the prompt.

Market Activity

HSFO buy/sell ratio jumped to 4.71:1 (from 2.38) as the offer side collapsed; VLSFO eased to 1.83:1 (from 3.31), the two grades diverging as the heavy/sour deficit starved HSFO of sellers:

• HSFO 3.5% barge: 363 bids vs 77 offers (ratio 4.71, up from April's 2.38) with 96 completed trades, nearly double April's 54; the ratio rose because offers more than halved (178 to 77), the sell-side scarcity directly consistent with the Hormuz heavy-sour deficit removing the material sellers would otherwise offer.
• HSFO sell-side regime change: Orim Energy, April's dominant HSFO seller at 129 trades, collapsed to 20 in May; Vitol stepped into the gap as top seller (125), with the disappearance of Orim's offer pace, not a new buyer, being the activity story behind the ratio spike.
• HSFO buy-side led by trade-house and bunker-reseller demand: Mercuria top buyer (128, intermediary positioning), with bunker reseller United Bunkers (56) and oil majors Totsa (60), bp Netherlands (59) and Shell (59) covering delivered-stem and blending needs against scarce offers.
• VLSFO 0.5% barge: 241 bids vs 132 offers (ratio 1.83, down from April's 3.31) with 101 trades; bids fell sharply (420 to 241) while offers held roughly flat (127 to 132), so VLSFO buy-side urgency cooled even as HSFO's intensified, the participant-side shadow of the divergent cracks and curves.
• VLSFO sell-side dominated by refiner-majors: EXTAP (ExxonMobil) top seller (91) and Shell (65), consistent with producer flow of compliant grade; oil-major bp Netherlands led the bid (89), buying as a bunker supplier breaking barges down for delivered stems.

Price Action

HSFO averaged $599.65/mt (+6.0% MoM, +51.2% YoY) but fell 2.6% open-to-close as the late-May Hormuz reopening signal broke the rally in Week 4 (-7.6% WoW).

• HSFO opened $585.25/mt, closed $570.00/mt, monthly average $599.65/mt vs April's $565.78/mt (+6.0% MoM, +51.2% YoY vs May-25 average $396.73/mt); the monthly average rose even as the month peaked mid-month and sold off, with flat price tracking a Brent move that eased from roughly $117/b (April avg) toward $106/b.
• Monthly high $638.50/mt (18 May), low $559.25/mt (27 May); the intra-month range of $79.25/mt narrowed versus April's $128.25/mt, the compression itself a sign the March regime shock was settling rather than re-escalating.
• Week 4 breakdown (-7.6% WoW) coincided with the reopening signal (EIA assumes Hormuz traffic begins picking up in June); unlike a supply-driven plateau, this was an active retracement as the market priced partial normalisation, not consolidation at the highs.
• Largest single-day move -$37.75/mt (-6.1%) on 6 May from $622.50/mt, an early-month round trip rather than a trend session

Cross-Market Dynamics

HSFO crack to Brent improved $19/bbl to -$9.12/bbl as Hormuz heavy-sour removal forced HSFO to outrun crude; the Hi-Lo sat sub-$80/mt all month, inside the scrubber-questioned zone.

• HSFO crack vs Dated Brent (prompt) improved from -$28.11/bbl (April avg) to -$9.12/bbl (May avg), opening -$20.62/bbl and closing -$5.46/bbl, with a high of -$2.71/bbl (7 May); the mechanism is the Hormuz blockage removing heavy-sour crude and HSFO directly (around 87% of the ~580kbd of Hormuz fuel oil transit was HSFO), so HSFO held firm while Brent fell.
• VLSFO crack vs Brent improved only $4/bbl (-$5.11/bbl to -$1.08/bbl, turning positive at +$4.64/bbl by close); the HSFO crack improvement (+$19/bbl) was roughly 5x larger, confirming the tightening was heavy/sour-specific not complex-wide.
• Hi-Lo spread (VLSFO minus HSFO) averaged $58.69/mt vs April's $53.14/mt, but the month-end level compressed sharply from April's $98.50/mt close to $61.25/mt; the spread traded a $46.25 to $74/mt range, entirely below the $80/mt level where scrubber payback economics get questioned.
• Implication: with HSFO doing the work, the Hi-Lo compression is a function of HSFO strength, not VLSFO weakness; sustained sub-$80/mt eventually pulls scrubber-fitted bunker demand back toward VLSFO, the rebalancing trigger to track.

Cross-Regional Dynamics

Singapore Hi-Lo blew out to $114.76/mt, roughly 2x ARA's $58.69/mt, opening an eastbound VLSFO pull; ARA HSFO discount to Singapore narrowed $19/mt as ARA tightened in sympathy.

• ARA HSFO discount to Singapore (cargoes) narrowed from -$72.42/mt (April avg) to -$53.13/mt (May avg) as ARA HSFO tightened on the same Hormuz heavy-sour deficit; the narrower discount reduces the eastbound HSFO arb pull and keeps more ARA barrels in-region.
• Singapore Hi-Lo widened to $114.76/mt (May avg) from $79.68/mt, roughly 2x ARA's $58.69/mt; per the desk's arb rule, a Singapore Hi-Lo materially wider than ARA's incentivises ARA cargoes and blended VLSFO to head East.
• The divergence is the signal: HSFO tightened similarly across both hubs on the shared Hormuz driver, but the East retained a far richer VLSFO premium, so the relative-value flow pressure is eastbound on VLSFO while HSFO stays comparatively bid in ARA.

Curve Structure

Both grades backwardated all month (the signal, not the default); HSFO's prompt squeeze relaxed (M1-M2 +$22.25 to +$15.00/mt) while VLSFO's prompt held firm (M1-M2 +$33.50 to +$37.00/mt).

• Both curves sat in backwardation throughout (M1 > M2 > M3 > M6), the signal against this market's default mild contango; VLSFO was the steeper curve (M1-M6 +$111.75/mt vs HSFO +$102.00/mt at month start), consistent with its distillate-like firmness, while M12 was illiquid and unpopulated for both grades (fuel oil liquidity drops off past M3).
• HSFO backwardation flattened across every tenor: M1-M2 +$22.25 to +$15.00/mt, M1-M3 +$44.50 to +$32.00/mt, M1-M6 +$102.00 to +$76.25/mt; the front fell ($585.25 to $570.00/mt) while M6 rose ($483.25 to $493.75/mt), a front-led relaxation of the prompt squeeze as the late-May reopening signal eased prompt scarcity.
• VLSFO diverged: the prompt M1-M2 firmed to +$37.00/mt from +$33.50/mt even as M1-M6 narrowed to +$96.25/mt from +$111.75/mt; M1 fell $27/mt but the very front stayed bid, consistent with the eastbound VLSFO pull keeping NWE prompt supply tight while HSFO's prompt eased.

HSFO

VLSFO

Price Volatility

HSFO CV collapsed to 3.80% from March's 10.08% peak, back to the December-February baseline; the Q1 regime shock has fully unwound.

• HSFO CV fell to 3.80%, down from the March peak of 10.08% and below April's 5.81%, returning to the December-February baseline of 3.1 to 3.6%; the volatility from the Q1 supply shock has been fully absorbed.
• VLSFO CV compressed to 3.42% from April's 7.55%, a larger relative drop; both grades converging back to roughly 3.5% confirms the May move was a directional grind, not an event-driven spike.

Something to Watch

Strait of Hormuz reopening timeline as the binary catalyst:

• Observation: the EIA assumes Hormuz traffic begins picking up in June; the Week 4 flat-price breakdown (-7.6%) and the M1-M2 narrowing ($22.00 to $17.75/mt) already price partial normalisation.
• Why it matters: a confirmed reopening collapses the HSFO crack back toward its -$28/bbl April level and flips the curve toward contango as heavy-sour and HSFO flows resume; a stall re-tightens the prompt and re-widens backwardation.
• What to monitor: weekly Hormuz transit and fuel oil loadings; weekly M1-M2 close on ICE 3.5% Barges; HSFO crack vs Brent print.

Note: All figures, prices and market activity referenced in this report are based on the period 1 to 29 May 2026.