What fuel oil is
Fuel oil is the residual fraction remaining after lighter products have been distilled from crude. Because it is a residue rather than a single specified molecule, its properties vary with crude slate, refinery configuration and any blending performed downstream.
In commercial practice the market is organised around delivered grades rather than refinery cuts. The distinction that matters most to buyers is sulphur content, which determines whether a fuel is compliant for a given use without exhaust treatment.
The main grades
VLSFO (very low sulphur fuel oil) is the mainstream compliant marine grade at a maximum 0.50% sulphur. It is typically a blended product rather than a straight-run residue, which makes stability and compatibility between parcels a genuine operational concern.
HSFO (high sulphur fuel oil) at 3.5% sulphur remains in demand from vessels fitted with exhaust gas cleaning systems and from power and industrial users where local regulation permits it.
MGO (marine gasoil) and gas oil are distillate grades used where the lowest sulphur content or cold-flow performance is required, including inside emission control areas.
How fuel oil is priced
Physical fuel oil generally prices against a published assessment for a delivery location — most commonly Singapore, Rotterdam or Fujairah — plus or minus a differential reflecting quality, quantity, credit and delivery terms.
Barge-delivered and ex-wharf business price differently from cargo business, and the spread between the two reflects local barge availability, port congestion and demurrage risk as much as it reflects the underlying product value.
Paper markets in fuel oil swaps allow buyers and suppliers to hedge exposure separately from the physical fixture, and broker liquidity in those swaps directly affects how tightly physical differentials can be quoted.
Blending economics
Most compliant fuel is manufactured by blending components to hit a delivered specification at the lowest cost. The economics depend on component availability, tankage segregation, the ability to test and certify quickly, and the value of any give-away on specification.
Segregated storage is therefore a competitive asset. A terminal that can hold multiple components and blend to order can serve more demand patterns than one that can only break bulk.
The main hubs
Singapore is the largest bunkering location by volume and sets the reference for East of Suez business. Rotterdam anchors Northwest Europe and the Atlantic basin. Fujairah serves Arabian Gulf and Indian Ocean routings and is the natural arbitrage destination for surplus Western barrels.
Arbitrage between these hubs is a function of the price differential, freight cost for the relevant tanker size, and the availability of tonnage — which is why fuel oil trading and fuel oil shipping cannot sensibly be analysed apart from each other.