After six years in backwardation, VLSFO slips into contango — reshaping blending margins, storage logic, and the sulphur equation.
For the first time since its creation as a distinct product, 0.5% fuel oil has fallen into contango — currently sitting around –$2.50, with December/January settling at –$4.40. It’s almost six years to the day since we last saw that structure. Ironically, every other major crack is healthy. As the Americans would say, “go figure.”
A weaker 0.5% curve bodes well for 3.5% HSFO, since sulphur cutters are suddenly cheaper. Taking just a percentage point off a 4.5% SOMO barrel becomes more affordable, expanding blending economics for seasoned operators. Those same blenders will tell you that anything up to 1.3% sulphur can be massaged into the 0.5% market — meaning this isn’t just a 0.5% issue, it’s a cross-grade one.
Scrubber-enabled vessels continue to define who can afford to ignore the 0.5% market altogether. Current fleet profiles tell the story:
| Fleet Type | % with Scrubbers |
|---|---|
| Container | 53% |
| Tanker | 37% |
| LPG | 25% |
| Bulk Carrier | 20% |
| LNG | 0% |
With over a third of tankers still able to burn 3.5%, the relative value between compliant and high-sulphur fuel remains as much about infrastructure as price.
Anyone tempted to store 0.5% will find tanker economics a reality check. Monthly rates currently stand around USD 2.7m for a VLCC (280,000mt), USD 1.9m for a Suezmax (140,000mt), and USD 1.2m for an Aframax (100,000mt). With sanctions heat rising, Russia should arguably be stockpiling Tuapse barrels, though they’re more likely entertaining MOPS –50 bids than paying for floating storage.
In Southeast Asia, Pertamina has been forced to shift strategy as Balikpapan LSFO and Balongan DCO attract little interest — now lifting and flat-price trading their own barrels. Meanwhile, Jadestone Energy’s small but intriguing Stag heavy sweet program in Northwest Australia offers a live test case for market-making. The 40kt cargo takes three months to load and just six days to reach Singapore, with the Hafnia Bobcat loading on 12 October — making mid-January its likely sale window. It’s the rare piece of physical supply with a clear line of sight to the swaps market, and perhaps a chance for someone to test the spreads in real time.
After years of backwardation, 0.5% contango signals more than a storage play — it’s a shift in how sulphur economics, blending flexibility, and compliance costs will interact through Q4. Blenders will find new opportunities; refiners will re-evaluate cutter value; and traders will start eyeing the arbitrage between structure and strategy. For a market born from regulation, it’s ironic how much of its next chapter may be written by pure commercial logic.
