September Pricing Analysis - European Fuel Oil

SUMMARY

HSFO 3.5% NWE FOB Barges averaged $553.77/mt in September, +12.19% MoM and +43.12% YoY. VLSFO 0.5% averaged $639.49/mt, +5.56% MoM and +45.82% YoY. Crude rallied faster than fuel oil, compressing crack spreads: the HSFO crack fell to -$16.53/bbl and the VLSFO crack turned negative at -$2.81/bbl. The VLSFO crack kept falling after easing crude prices, ending W5 at -$7.11/bbl, which means late-month VLSFO weakness was specific to the product. The Hi-Lo fell 23.6% to average $85.72/mt and closed at $67.75/mt, below the $80/mt scrubber economics threshold. ARA built stocks even as exports rose, keeping its VLSFO discount to Singapore at -$162.91/mt. HSFO's curve bull steepened, with M1-M12 backwardation at $95.50/mt.

MARKET ACTIVITY

• 248 trades from 666 bids and 411 offers (bid:offer 1.62:1, against 2.05:1 in August).
• HSFO trades rose to 149 from 78, and its bid:offer ratio fell to 1.45:1 from 2.71:1 as sellers met the higher prices.
  • Sellers: intermediaries Vitol (55, against 12 in August) and Aramco Trading (44, against 7) led, followed by Shell (28) and TOTSA (22). That is only four sellers, so the sell side was concentrated.
  • Buyers: BP bought 57 HSFO barges after being August's top HSFO seller (42). This removed a sell-side absorber and added a bid. Bunker supplier United Bunkers (19) was potentially buying to cover delivered stems.
• VLSFO trades fell to 99 from 113. Glencore remained the dominant seller (74, against 95), while oil majors Shell (38) and TOTSA (31) covered blending and bunker needs as the crack fell.

PRICE ACTION

CROSS-MARKET DYNAMICS

• HSFO crack vs Brent futures: averaged -$16.53/bbl, against -$11.87/bbl in August and -$6.77/bbl a year ago. It weakened from -$14.44/bbl (W1) to -$18.53/bbl (W3), with a low of -$19.66/bbl on 15-Sep.
• HSFO crack vs Dated Brent: averaged -$29.59/bbl. The gap to the futures basis shows the physical crude premium the Hormuz situation created.
• VLSFO crack: fell from +$5.07/bbl to -$2.81/bbl, a $7.88/bbl drop. It weakened every week, from +$1.61/bbl (W1) to -$7.11/bbl (W5), with a low of -$8.75/bbl on 29-Sep. Because the slide sped up later in the month, when Brent weakened, crude does not explain it.
• Hi-Lo: averaged $85.72/mt, against $112.19/mt in August (-23.6%) and $51.64/mt a year ago (+66.0%). It held near $97/mt through W3, then fell to $67.40/mt (W4) and $61.17/mt (W5). It touched $55.50/mt on 28-Sep and closed at $67.75/mt.

CROSS-REGIONAL DYNAMICS

• ARA-Singapore VLSFO averaged -$162.91/mt, against -$131.08/mt in August. It was widest at -$205.36/mt on 16-Sep and closed at -$152.24/mt, as Asia's low-sulfur shortage lifted Singapore 0.5% by 8.8% MoM.
• ARA-Singapore HSFO averaged -$97.60/mt, against -$81.91/mt. It was widest at -$148.18/mt on 14-Sep, the day Singapore 380 peaked, and Singapore 380 rose 13.1% MoM.
• ARA exports rose to 254,000 b/d mid-month from 144,000 b/d in August, and imports fell to 256,000 b/d from 342,000 b/d (Vortexa data). Even so, stocks averaged 17% above August (Insights Global data). ARA needed a discount to maintain the arbitrage east.

CURVE STRUCTURE

VLSFO

HSFO

PRICE VOLATILITY

SOMETHING TO WATCH

• Gulf crude exports sustain / ramp up:
  • Observation: Saudi east-west pipeline flows reached 3.5 mb/d by 28-Sep, about half the pre-attack level.
  • Why it matters: a further ramp-up eases crude pressure, supporting cracks
  • What to monitor: reported pipeline throughput, Red Sea and Gulf / STS loadings
• Hi-Lo below $80/mt:
  • Observation: the Hi-Lo closed at $67.75/mt after touching $55.50/mt, while Singapore's Hi-Lo held at $125.05/mt.
  • Why it matters: a Hi-Lo held below $80/mt weakens the payback on scrubbers and shifts bunker demand back toward VLSFO. Singapore's wider Hi-Lo shows Asia is not following ARA lower.
  • What to monitor: the weekly ARA Hi-Lo close against $80/mt, and the Singapore Hi-Lo.
• ARA stocks and eastbound flow
  • Observation: ARA VLSFO closed $152.24/mt under Singapore, with exports at 254,000 b/d and stocks 17% above August.
  • Why it matters: if exports keep drawing stocks down, the discount narrows and ARA VLSFO firms. A renewed stock build would keep the discount and the Hi-Lo under pressure.
  • What to monitor: weekly ARA stocks, ARA fuel oil exports, and the HSFO M1-M2 spread.

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