The premium for high-sulphur fuel oil (HSFO) in Asia versus the West climbed to its highest in eight months on Friday. Traders expect more Venezuelan crude and fuel oil supply to reach the United States in coming months, with less coming to Asia.
The front-month East-West 380-cst HSFO swap jumped to more than $27 a barrel, LSEG data showed. This level was last hit in May 2025, and the value has more than doubled since the start of 2026.
A widening of the price spread typically makes it more lucrative for traders to send more fuel oil to Asia. US President Donald Trump seized Venezuelan President Nicolas Maduro last week and said the US will control the South American country's oil sector.
Secretary of State Marco Rubio said on Wednesday the US would refine and sell up to 50 million barrels of Venezuelan crude. Meanwhile, the US continues to seize Venezuelan-linked tankers.
"It will add an additional source of pressure for the US Gulf Coast HSFO market," said Royston Huan, fuel oil and feedstocks analyst at consultancy Energy Aspects. He noted the market has already weakened from higher Canadian heavy crude availability for US sites.
Traders bid up the East-West spread this week as US markets turned bearish. Market participants expect more high-sulphur Venezuelan crude and fuel oil to be diverted to US refineries, reducing supply for Asia.
The uncertain outlook for Venezuelan oil supply in Asia has also created volatility in HSFO forward prices. Singapore's balance-January/February spread flipped into backwardation on Wednesday, before swinging back into contango on Thursday.
Backwardation refers to a market structure where prompt prices are higher than future ones, indicating tighter immediate supply. Contango is the reverse.
The spread flipped into backwardation again in early trade on Friday, according to market sources and LSEG data. Fuel oil price gains in Asia are currently tempered by ample inventories stored in onshore tanks and onboard ships.
Chinese independent refiners have been a key outlet for Venezuelan crude and fuel oil due to Western sanctions. "The loss of cheap Venezuelan feedstock will weigh on refiners' profitability," said Emril Jamil, senior oil analyst at LSEG.
He added that this may force them to scale back on refining run rates or source alternative residual feedstocks.
(Reporting by Jeslyn Lerh; Editing by Florence Tan and Tom Hogue)
