What fuel oil is

Fuel oil is the residual fraction left after lighter products such as gasoline, naphtha, jet and diesel have been drawn from crude in the refining process. Because it sits at the bottom of the barrel, its value is closely tied to how much upgrading capacity the refining system has and to how much demand exists in marine and power markets.

The main grades

  • VLSFO — very low sulphur fuel oil, capped at 0.50% sulphur, the default marine fuel for vessels without exhaust gas cleaning.
  • HSFO — high sulphur fuel oil, typically around 3.5% sulphur, used by vessels fitted with scrubbers and by some power and industrial users.
  • ULSFO — ultra low sulphur fuel oil at 0.10% sulphur, for emission control areas.
  • MGO and gasoil — distillate grades used where residual fuel is unsuitable or unavailable.

Specifications that matter

Buyers look beyond sulphur. Viscosity, density, flash point, water and sediment, catalyst fines and cold-flow behaviour all affect whether a fuel can be handled safely by a given vessel. Disputes in the bunker market usually concern quality parameters rather than price.

How pricing works

Cargo prices are assessed against regional benchmarks, typically on a barge basis in northwest Europe and a cargo basis in Asia and the Middle East. Delivered bunker prices then add the cost of barge logistics, credit and the supplier's margin. The spread between VLSFO and HSFO is the single most watched relationship in the market because it drives scrubber payback.

Blending

Most marine fuel is blended rather than produced as a finished grade. Blenders combine residual streams with cutter stock to hit a specification at the lowest cost, which is why access to component supply and to tankage near demand centres is commercially valuable.

Bunkering hubs

Singapore, Rotterdam and Fujairah dominate volume, supported by regional hubs at Gibraltar, Panama, Houston and Zhoushan. Hub status depends on component availability, tankage, barge fleets and licensing regimes rather than on geography alone.

Shipping and logistics

Residual fuel moves on dirty product tankers, and voyage economics are shaped by tonne-mile demand rather than by traded volume alone. Terminal capacity, pipeline transfer rates and barge availability determine whether a cargo can be turned into deliverable stems.

Continue reading

Follow our ongoing coverage of fuel oil trading, fuel oil shipping and fuel oil logistics, or see the marine fuel glossary.