East/West HSFO paper spread nears 4-year high as West weakens, Singapore tightens

The East/West swap spread for high sulfur fuel oil climbed to its strongest level in nearly four years, reflecting a widening disconnect between a soft European complex and a firmer Asian market.

Platts, part of S&P Global Energy, assessed the front-month paper East/West spread -- the difference between 3.5% FOB Singapore cargoes and the equivalent Rotterdam barge value -- at $39.25/mt on Jan. 27, up $2.50/mt day over day.

The spread was last higher on April 29, 2022, when it was assessed at $57.75/mt, highlighting the scale of the latest move. The spread touched $41/mt in morning European intraday trading on Jan. 28.

The move was being driven by a combination of geopolitical risk and regional fundamentals, with the West seen as the weak leg and Asia receiving support from tightening prompt signals, market participants said.

In Asia, participants pointed to ongoing uncertainty around supply and trade flows -- including the impact of Russian volumes and the reshuffling of heavy-sour availability following US moves related to Venezuelan crude -- as contributing to a higher risk premium embedded in the spread.

Asian HSFO structure continued to signal firmness. Platts assessed the Singapore 380 CST HSFO February-March swaps time spread at $12.45/mt on Jan. 26, compared with $12.20/mt the previous session.

The Mo1-Mo2 intermonth spread for Singapore 380 CST HSFO has averaged plus $5.41/mt in January, after averaging minus $2.83/mt in December, following a flip into backwardation earlier this month, Platts data showed.

Despite the firmer prompt structure, traders pointed to mixed views on whether the rally was fully supported by physical flows, with some describing the move as led by the paper market.

"I don't fully see it: last week we saw a drop in residuals inventories ashore in Singapore, but levels for FSUs [floating storage units] are still high ... Russian fuel exports are still resilient -- actually higher than December levels."

In Europe, HSFO demand remained muted amid regulatory constraints and seasonally weaker consumption, while weather disruption in the Mediterranean was slowing operations and complicating near-term scheduling, market sources said over the past week.

Highlighting the persistent weakness, the front-month January 2026 crack averaged at minus $10.453/b up to Jan. 27, compared to minus $7.398/b in January 2025 -- a year-over-year drop of $3.055/b.

This trend was further supported by the ongoing weak market structure, which began the year in a strong contango. Platts assessed the front-month time spread at a contango of $3.25/mt on Jan. 2, transitioning to a backwardation of 50 cents by Jan. 27, reflecting a daily drop of 50 cents.

With the Asian prompt structure remaining supported and European demand subdued, participants said the East/West spread could stay elevated in the near term, though some cautioned that the move could prove vulnerable if paper length unwinds or if logistical constraints ease and regional availability rebalances.