HSFO380

Open Interest for June 380 has now surpassed that very telling 5 million mark.

Rumour has it this positioning is emanating from London, and ARA data is supporting the idea that this play is rooted there.

NWE

What makes this scenario impossible to fully appreciate for pure derivatives participants — those restricted to assessing curves alone — is the asymmetry of it.

The Oil Companies are visibly focused on 0.5%, vis-à-vis turning around Heavy Sweet in Rotterdam.

Those crudes are sold on the Brent curve before roughly 50% of that gross mass drops into the 0.5% market.

One of the Big Trading Houses, on the other hand, is clearly having a run on 380, betting that legitimate 3.5% availability globally is materially less than market consensus.

Paradoxically, whether they are right or wrong is almost beside the point.

The muscle-flexing itself draws in the market makers who represent Oil Major liquidity and consequently aligns broader market positioning to the Trading House point of view, turning the move into a self-fulfilling prophecy.

Boilerplate bull-run behaviour in the Fuel market.

“Cowboy.”

BIRDSEYE OBSERVATION

How do you make more money in a backwardated oil market as a supplier — be that a terminal operator or simply someone with tanks?

You weaponise Force Majeure.

Your contracts state X price, but you can achieve +50 over and above your existing commitment if you claim non-performance on a clip, only to retender and sell that same volume to a new customer.

With the world in its current state, that becomes extremely difficult for the original purchasing counterparty to litigate after the fact.

“Guerilla Warfare.”

These two one-million-barrel Suezmax fixtures from Total also looked highly strategic:

Structured around a lighterage job that was functional, but also gave them cover — effectively a 2-million-barrel proxy derivative pontoon.

It is another sign of the times.

The Majors have spent years shedding bricks-and-mortar assets which have since been picked up by the Trading Houses.

Consequently, forums like the Singapore MOC are becoming far more hostile in nature.

Having real estate is now more important than ever in Fuel Oil’s Colosseum.

CARIBBEAN

In the Caribbean, this was attempted and failed:

We are probably short of legitimate Platts-suitable HSFO, which is likely what made Ecopetrol think they could make this work.

65,000mt only, on a very long arbitrage at 61.5 dollars per ton freight.

This particular ship is a Trafigura Panamax relet, so naturally all their internal alarms would have triggered regarding actual spot availability of that stem.

Barrels like Mexican and Colombian material, if not shepherded in by somebody experienced in removing the metals, could easily trip the market up.

Our desperation to secure legitimate HSFO could eventually result in some quite serious off-spec bunker issues.

RED SEA

Aramco is now leaning into the Singapore pool for a second time in order to satisfy their Red Sea power stations:

We always think of Aramco as what they are — a State-Owned Oil Company.

But domestically, they are also a utility company.

They are fundamentally in the business of generating electricity for their population.

This matters because should the US/Iran conflict persist into the winter, we may need to start thinking about other State-Owned Utility entities using Aramco as the case study.

Germany and Japan mirror one another closely when assessing the spark spread and both experience their coldest months in January.

JERA (Japan), RWE (Germany) and Uniper (Germany) are all fundamentally Coal vs HSFO vs LNG participants.

LNG has always been expensive — especially now with Qatar untethered.

HSFO, as outlined above, has become too desirable for speculation.

Coal therefore has to step in, just as it did for Germany in 2022.

Shenhua/CEIC (China) is the other major trilateral trader across those markets.

But China has just experienced its worst mining disaster in 16 years — and in a coal mine supporting roughly one-third of the country’s coal consumption no less.