European Hi5 spread jumps amid shortage of gasoil blendstock
Quantum Commodity Intelligence - The spread between low sulfur and high sulfur fuel oil – known as the Hi5 spread – in Europe hit an all-time high amid a shortage of Russian imports of distillate blendstock and rising exports of low sulfur fuels to Singapore, brokers told Quantum.
While fuel oil 3.5% sulfur barges in ARA have been lacking buying interest over the past week and a half, marine fuel 0.5% sulfur barges have been sharply bid higher, pushing the flat price to a near three-month high.
Spot marine fuel 0.5% barges were last assessed at $879/mt, its fourth-highest print since the fuel was introduced as part of IMO2020, widening the Hi5 spread to $274.50/mt, a likely record high, Quantum data showed.
"There is just not enough VGO around, and now you can see that there is a severe tightness coming into the low sulfur market," a fuel oil broker told Quantum.
Much of the vacuum gasoil in Europe was imported from Russia before the start of the war in Ukraine, with those flows drying up as western majors have shunned Russian barrels.
VGO shortage
That has shifted all the VGO left in Europe to hydrocrackers to produce more valuable products, such as gasoline and diesel, which have seen cracks soaring, depriving the fuel oil market of gasoil blendstock.
At the same time, low sulfur marine fuels have been exported at pace from the ARA trading hub to both the Mediterranean and Singapore due to a shortage of low sulfur bunker fuels there, the broker added.
The East-West spread – the difference between marine fuel 0.5% barges in Singapore and ARA – jumped above $100/mt by the Wednesday Asia close, its highest since early March, as more volumes head eastwards.
Meanwhile, high sulfur fuel oil imports, mainly from Russia, continue to flow into Europe's largest port complex, causing buoyant fuel oil stocks and pushing prices back down, with the East-West arb closed.
ARA fuel oil stocks reached a two-month high of 1.06 million mt at the end of last week amid a rise in imports, Insights Global data showed.
That has caused the crack for high sulfur fuel oil to tumble to a near-record low of -$22.3/b, while low sulfur cracks have risen to a one-month high $9.9/b.
The shortage of blendstocks to reduce the sulfur content in HSFO has also contributed to the buildup of unwanted barrels.
Only vessels fitted with onboard scrubbing technology to remove sulfur can use 3.5% bunker fuel.
