In High Sulfur Fuel Oil (HSFO), the huge 3.5% rally may have stalled, with the front crack reaching a new high of -$7.10/bbl on 30 Oct. The strength seems to have softened since, with Dec’24 dropping to -$8.55/bbl on 1 Nov. Dec’24 380 E/W fell saw its strength wane, unable to hold rallies above $9.75/mt. Dec’24 E/W open interest dropped to 8.4mb on 15 Oct but rose to 9.5mb by 30 Oct, indicating profit-taking. Dec’24 Visco saw small gains, peaking at $12.50/mt on 1 Nov, with net buying amid low liquidity and minor day-to-day changes.
In Very Low Sulphur Fuel Oil (VLSFO), the complex saw a fortnight of two halves and increasing price volatility. Bullish sentiment was initially driven by supply tightness concerns and limited prompt availability, and further buoyed by Middle East geopolitical risk. Refinery maintenance also contributed to the scarcity of blending components. The Nov’24 Sing 0.5 crack initially rose above $15/bbl on 24 Oct before selling off to $13/bbl before rising to $14.50/bbl by 31 Oct. The fluctuations were influenced by rumours of increasing supply out of a Malaysian refinery which later turned out to be unsubstantiated. Trade houses bought Sing 0.5 spreads on the dip, we noted spread buying interest down the curve from Nov’24 into Nov’25. Europe was similarly strong on arb buying interest alongside spread buying from European hedgers and US physical players.
Open interest (OI) in VLSFO contracts has surged, with the M1 Sing 0.5% crack rising to 22mb, far above the 5-year average, and the M1 0.5% barges crack increasing by 22% over the fortnight to 10.2mb. However, OI in deferred tenors remained low, with Q2’25 in both these contracts at 3.2mb and 6.1mb, respectively. OI in HSFO increased significantly, with M1 3.5% barges crack OI surpassing the historical average, currently at 25.4mb.
Looking at the 30-day correlation we saw a weakened positive correlation between the 3.5% barge crack and the Brent and Dubai crude benchmarks, with the coefficient falling from 0.3 to 0.1. The correlation between the 3.5% and 380 cracks strengthened, rising from 0.34 to 0.74 over two weeks. However, the 380 crack became less correlated with the 380 East/West, falling from 0.88 to 0.47, indicating that different fundamentals are driving the individual markets.
Freight continued to be weak, with the M1 TD5, TD3C and TD20 all sustaining a net loss in the past two weeks. The largest fortnightly loss was in M1 TD3C, which lost 13% of its value from two weeks ago. Losses in freight may be due to the easing of geopolitical risk in the Middle East. It also may point to the market not believing there will be a return of OPEC barrels in December or the ARA flow cut from the Dangote RFCC.
Q1’25 refinery margins have recovered in both Europe and Asia, seeing increases of 65c/bbl and 90c/bbl, respectively. While weakness in gasoil and Sing 10ppm persisted, strength was added through propane and naphtha products amid lower crude.
