SUMMARY
Both grades rallied with crude in September, with 380cst HSFO averaging $651.38/mt (+13.1% MoM) and 0.5% VLSFO $802.40/mt (+8.8% MoM), but the fuel oil story was the grades diverging on supply. HSFO supply recovered as Saudi and UAE shuttle loadings resumed and Saudi issued its first HSFO export tenders since the start of the US-Iran conflict, just as peak summer power demand from the Middle East and Egypt tapered. The HSFO crack vs Dubai flipped from +$1.86/bbl in August to a -$11.04/bbl September average as a result. VLSFO moved the opposite way on tighter supply: Singapore arrivals dropped sharply as Brazilian LSFO was diverted to Latin America and UAE barrels stayed home for Fujairah bunkering, keeping physical cargoes bid at a sustained premium to paper. The Hi-5, which is the spread between VLSFO and HSFO, compressed from +$178.06/mt (open) to +$125.05/mt (close) as HSFO flat price outpaced VLSFO as crude rallied. Both swap curves steepened, with HSFO M1-M12 backwardation doubling from +$79.99/mt to +$158.01/mt. Looking forward, there are questions whether Saudi and UAE shuttle activities will persist into Q4; sustained tenders cap the HSFO crack recovery, while VLSFO structure stays supported until Singapore arrivals rebuild.
MARKET ACTIVITY
- HSFO window: 335 bids vs 115 offers (2.9 to 1 bid/offer ratio), 42 completed trades. Producer selling led the offers: Aramco Trading SG sold 16 trades, consistent with recovered Saudi flow reaching the window; BP (8) and Total (7) followed
- VLSFO window: 258 bids vs 102 offers but only 5 trades completed; consumer and bunker-side bidding (BP 44 bids, Maersk 28, Unipec 28, Idemitsu 21) met intermediary offers (Trafigura 31) that largely did not transact, consistent with sellers holding cargoes against falling arrivals
PRICE ACTION
380cst HSFO FOB Cargoes (USD/MT)
0.5% VLSFO FOB Cargoes (USD/MT)
CROSS-MARKET DYNAMICS
- HSFO crack vs Dubai averaged -$11.04/bbl vs +$1.86/bbl in August, troughing at -$22.61/bbl on 9 Sep before recovering to -$2.06/bbl (close); the swing reflected recovered Saudi and UAE supply due to increased shuttle activities from the Middle East Gulf
- VLSFO crack vs Dubai averaged +$12.75/bbl vs +$27.30/bbl in August, with the low of +$1.02/bbl on 9 Sep; the crack compression was crude-led, while the 940,600 MT MoM drop in Singapore arrivals kept the physical premium elevated
- Physical premiums diverged: HSFO vs MOS firmed from +$29.64/mt (Aug avg) to +$38.95/mt, peaking at +$56.99/mt on 14 Sep, while VLSFO vs MOS softened from +$51.07/mt to +$37.11/mt
CROSS-REGIONAL DYNAMICS
- Fujairah-Singapore HSFO cargo spread averaged -$72.04/mt vs -$50.49/mt in August, widened from -$54.61/mt (open) to -$75.16/mt (close) with the widest spread of -$92.14/mt on 28 Sep
CURVE STRUCTURE
0.5% VLSFO swaps (USD/MT)
380cst HSFO swaps (USD/MT)
- HSFO forward curve steepened: M1 gained $93.20/mt vs M12 +$15.18/mt; the back of the curve holding firm confirmed the market treated the crude-led rally and the ME supply recovery as prompt events, not a structural shift
- VLSFO forward curve also steepened: M1 gained $69.25/mt vs M12 +$2.92/mt, but M1-M2 moved only +$2.00/mt; the steepening sits in M2-M6, consistent with the arrival shortfall expected to persist beyond the prompt window rather than squeeze it
PRICE VOLATILITY
- HSFO CV rose to 6.71% from 5.49% and VLSFO to 3.25% from 2.70%, both under half the June-July regime; the W2-W3 rally lifted dispersion without breaking the normalized range, so hedge sizing calibrated to the post-June regime remains valid
SOMETHING TO WATCH
- Continued tender issuance from Saudi Arabia into Q4 will confirm if structural supply has truly normalized as well as cap crack recovery, while a halt, and subsequent shortage would reopen the supply tightness that kept the crack positive through August. Further tender awards, shuttle vessel activities, and the weekly HSFO crack close are the triggers to track.
- VLSFO arrivals into Singapore are the structure signal: Rebuilding arrivals from Brazil and UAE would compress the mid-curve backwardation and the premium; a second month of diverted Brazilian flow would push the tightness into the prompt. Enterprise Singapore weekly inventory and the weekly VLSFO vs MOS close are the monitors.
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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