The price difference between low-sulfur and high-sulfur fuel oil in Asia has shrunk to its lowest point since the IMO 2020 regulations. This is due to consistently weak demand for low-sulfur fuel and strong demand for high-sulfur fuel, which is experiencing supply constraints, reports S&P Global.
Regulatory Impact
IMO 2020 regulations require ships to use fuels with no more than 0.5% sulfur unless they have scrubbers. Initially, this caused a shift to low-sulfur fuels (LSFO), increasing demand. However, with cheaper scrubber installations, more ships are using high-sulfur fuel oil (HSFO) again.
The price difference between HSFO and LSFO (the Hi-5 spread) significantly decreased in 2025, reaching its lowest point since 2019.
Factors contributing to this include:
- Increased LSFO supply from Western markets, coupled with weak demand in Asia.
- Reduced availability of both compliant and sanctioned HSFO and consistent demand, driving HSFO prices up.
Contrasting Trends
The Singapore bunker fuel market is showing contrasting trends:
- LSFO Weakness:
- The Singapore marine fuel 0.5%S cargo differential has turned negative for the first time since April 2024.
- This weakness has made West-to-East arbitrage unprofitable, likely reducing LSFO inflows in April.
- LSFO bunker demand is expected to see only a slight increase following recent seasonal weakness.
- Ample LSFO stockpiles and weak demand contribute to compressed Hi-5 spreads.
- Singapore LSFO bunker sales have dropped by 13.2% year over year in January.
- HSFO Strength:
- The Singapore 380 CST HSFO cash differential has surged to its highest level since August 2023.
- However, this rally is expected to moderate due to reduced power generation demand and lower refinery feedstock demand.
- Singapore HSFO bunker sales rose 0.8% year over year in January.
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Source: S&P Global
