Asia fuel oil premiums over West soar as more Venezuelan oil to divert to the US

By Jeslyn Lerh

SINGAPORE, Jan 9 (Reuters) - The premium for high-sulphur fuel oil in Asia versus the West climbed to its highest in eight months on Friday as 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 FO380SGEWMc1 - a measure of price differences between HSFO in Asia and in the United States and Europe - jumped to more than $27 a barrel, LSEG data showed, a level last hit in May 2025. The value has more than doubled from the start of 2026.

A widening of the price spread typically makes it more lucrative for traders to send more fuel oil to Asia.

U.S. President Donald Trump seized Venezuelan President Nicolas Maduro last week and said the U.S. will control the South American country's oil sector.

Secretary of State Marco Rubio said on Wednesday the U.S. would refine and sell up to 50 million barrels of Venezuelan crude, with the U.S. continuing to seize Venezuelan-linked tankers.

BEARISH US OUTLOOK

"It will add an additional source of pressure for the U.S. Gulf Coast HSFO market, which has already weakened in the last quarter from higher Canadian heavy crude availability for U.S. sites," said Royston Huan, fuel oil and feedstocks analyst at consultancy Energy Aspects.

Traders bid up the East-West spread this week as U.S. markets have turned bearish at the prospect of more high-sulphur Venezuelan crude and fuel oil diverted to U.S. refineries, reducing supply for Asia, said an analyst at a U.S. refiner.

VOLATILITY IN 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, while contango is the reverse.

The spread flipped into backwardation again in early trade on Friday, according to market sources and LSEG data.

For now, fuel oil price gains in Asia are tempered by ample inventories stored in onshore tanks and onboard ships, some traders said.

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, forcing them to either scale back on refining run rates or source alternative residual feedstocks," said Emril Jamil, senior oil analyst at LSEG.