VLSFO Premium to Brent Near Record Highs as Oil Slumps

VLSFO's strength has shown no sign of dissipating yet. Image Credit: Ship & Bunker

Global VLSFO prices have held onto their gains more stubbornly than crude over the past two months as oil markets retreated, leaving the dominant bunker grade's premium to Brent near record highs.

Brent crude futures have slumped over the past two months as warnings of impending recession outweigh concerns over supply prospects, and on Thursday intraday prices dipped below levels seen before Russia's invasion of Ukraine on February 24.

But VLSFO has outperformed global crude markets. Ship & Bunker's G20 Index of average VLSFO prices at 20 leading ports hit a record-high premium of $314.22/mt to Brent on July 5, or 141% of the Brent price.

The premium stood at $213,78/mt on Thursday, or 128.7% of the Brent price, compared with averages this year of $104.47/mt and 112.8%.

VLSFO's strength is coming off the back of red-hot middle distillate markets, which have also outperformed crude as refiners struggle to replace Russian exports. Distillate blending components are a key element of VLSFO.

ICE gasoil's premium to Brent stood at $349.03/mt on Thursday, compared with an average this year of $233.08/mt.

Uncertain Demand

But the strength in VLSFO is coming despite somewhat mixed signals from bunker demand. Singapore's first-half sales were down by 9.3% on the year, and the lowest half-yearly total since the first half of 2015. Fujairah's bunker volumes in January-May were 2.5% higher than in the same period a year earlier.  Panama's January-May sales were 3.5% higher than a year earlier.

And Ship & Bunker and BLUE Insight's first-quarter survey of volumes in 17 leading bunkering areas showed demand was 2.6% down in the first three months of the year from the same period of 2021.

Some areas have seen strong demand this year, notably Algeciras, Zhoushan and Hong Kong, but it remains to be seen whether these gains can offset the wider decline.