Asia’s hi-5 fuel oil spread reached its widest level in over four months, reflecting a softening high sulphur fuel oil (HSFO) market this week. On Friday, the hi-5, which represents the premium of very low sulphur fuel oil (VLSFO) over 380-cst HSFO, surpassed $82 per metric ton for the July contract, according to data from LSEG.
This spread was last observed in early February. Spot differentials and backwardation spreads for HSFO have eased this week, primarily due to high prompt supply availability.
The Singapore 380-cst HSFO crack spread settled at a discount of nearly $2 per barrel, a notable decline from being close to parity with crude quotes the previous week. Meanwhile, VLSFO also saw a slight downturn, although it was not as pronounced as the decline in HSFO, with margins holding steady around $11 a barrel.
Fuel oil inventories have risen week-on-week across major storage hubs, including Singapore, Fujairah, and Rotterdam. In particular, ARA fuel oil inventories increased by 0.6% to 1.05 million tons for the week ending June 26, according to data from Dutch consultancy Insights Global.
In other news, oil prices were on track for their most significant weekly decline since March 2023, with the lack of substantial supply disruptions resulting from the Iran-Israel conflict diminishing the associated risk premium. Additionally, China’s imports of Iranian oil saw a notable surge in June, driven by accelerated shipments and growing demand from independent refineries.
Shipping costs in the Gulf have dropped in recent days, but rates may rise again if tensions escalate. Finally, the U.S. announced that it would not complete its scheduled deliveries of crude oil into the Strategic Petroleum Reserve until the year’s end due to maintenance delays, pushing the timeline back by as much as seven months.