High-Low spread negative for first time in nine months

European High-Low fuel oil spreads moved into negative territory on 11 June, with thin supply of higher sulphur products flipping the margin, market participants said.

Front-month swaps for high-sulphur fuel oil (HSFO) barges loading in ARA traded above those for low-sulphur fuel oil cargoes (LSFO) loading in northwest Europe on 11 June, for the first time since mid-August 2023.

Month one LSFO swaps were trading at $471.50/t, gaining $2.50/t on the day, while month one HSFO barge swaps rose by $5.25/t to $473.75/t, giving a High-Low spread of -$2.25/t.

Market participants said on 11 June that demand for lower-sulphur power generation fuel is weak and would need to pick up in summer to pressure the LSFO market. Prompt LSFO, which contains 1pc sulphur, would currently find higher demand from the marine fuels market, where HSFO, comprising 3.5pc sulphur, is in short supply. Middle eastern countries are using higher-sulphur residual product for power-generation purposes, creating knock-on tightness in the European marine fuels market.

Europe is also oversupplied with very-low sulphur fuel oil (VLSFO), comprising 0.5pc sulphur, also mostly used as marine fuel. This means LSFO would be unlikely to find its way into the VLSFO blending pool.

By 16:30 BST on 11 June, second-month LSFO swaps were pricing at $3.25/t above the month one swap, implying that the market is oversupplied with 1pc sulphur product. For HSFO swaps, month one was pricing $2.50/t higher than second-month swaps, implying the opposite for this market.

By Bob Wigin