Why directional shifts in heavy sweet crude tell you far more than the shallow contango on VLSFO.
Yes, Jan/Feb 0.5% may only be sitting at around –$1 contango, but that isn’t where the real information lies. The signal is buried one layer deeper — in the directional shifts within heavy sweet crude.
Because heavy sweet is typically priced off Brent, many participants blindly net it against the 0.5% curve, assuming the relationship is static. For anyone without visibility into the physical market, that’s a dangerous simplification.
Recent North China arrivals underline the point.
Kraken from Scapa Flow almost never leaves the Atlantic Basin, yet it’s turning up in Qingdao. Even more striking is Dar Blend bypassing the Singapore blending pool entirely in favour of China — something we haven’t seen since IMO 2020.
That shift isn’t happening in isolation. Dar has effectively lost Fujairah as an outlet following the UAE’s ban on Sudanese grades earlier this year, forcing the barrel to seek alternative homes further afield.
Elsewhere, we’re seeing Pyrenees into Thailand, and Angolan barrels into Balikpapan. The latter is particularly instructive: BB Energy sells crude to Pertamina, allowing the Indonesian refiner to absorb the cracking loss, only to buy back the finished product — or take it delivered. It’s a clean example of how trading houses arbitrage refining pain, not just price.
When heavy sweet is run through a CDU, the resid yield tells you everything about its relevance to the 0.5% pool. From Kraken’s 60–70% resid yield to Brazilian and Australian grades consistently producing 45–65%, these crudes are not fringe inputs — they are structural feeders into compliant fuel.
This is why movements in Angolan, Brazilian, Sudanese, Australian, and UK heavy sweets increasingly lead the 0.5% market, rather than respond to it.
On the other side of the world, Skikda ULSFO is now moving regularly into the US Gulf Coast. Despite being commonly labelled “0.1%”, its actual sulphur sits closer to 0.24%, with a CST north of 130 — making it far more flexible than the label suggests.
Running alongside it, Libyan light sweet is also flowing steadily into the USGC. Together, these are the preferred barrels for Phillips 66, particularly for Bayway. The implication is telling: internal US refiners are pulling in barrels that compensate for what shale lacks.
When Azeri and Libyan crudes are sailing to the US Gulf, it says less about opportunity abroad and more about shale’s shortcomings. Shale delivers volume and liquidity — but it’s overwhelmingly light ends, with very little middle distillate. That gap still needs filling.
The 0.5% curve may look calm, but the physical market beneath it is anything but. Heavy sweet flows are stretching further, behaving differently, and absorbing roles once played by sanctioned or displaced barrels.
If you’re watching the VLSFO curve alone, you’re reacting.
If you’re watching heavy sweet direction, you’re positioning.
