The year-ahead hi-lo spread — the premium of 1% FOB Northwest Europe
fuel oil cargoes over 3.5% FOB Rotterdam barges — traded at a 17-month low
Thursday, according to S&P Global Platts data, as traders price in
expectations of diminished demand in 2018, sources said.

The year-ahead spread was heard traded at $10/mt Thursday morning, its
lowest value since June 7, 2016.

“The demand is dying going into 2018,” one trader said. “And people are
aware the Brazil situation has calmed down.”

Brazilian oil company Petrobras turned to Europe in October and November
for low sulfur fuel oil to use as a power generation feedstock, as it
struggles to import LNG and with low rainfall affecting hydropower output,
traders said.

Petrobras was unavailable for comment.

Trans-Atlantic fixtures are rare in the LSFO market and particularly so
to Brazil, historically a net exporter of LSFO capable of delivering up to
120,000 mt/month.

A second trader attributed the recent fall in Calendar 18 prices to a
halt in bidding from major trading houses in Europe.

“Totsa stopping bidding,” he said, referring to physical demand from the
trading arm of French oil major Total seen in recent weeks.

“We bought what we needed,” a trader at Totsa said.

The Calendar 2018 spread is expected to continue to soften, another
source said, and was heard offered at $10/mt Thursday morning.

Change in sentiment in the 2018 LSFO market seems to be related to the
prompt market, traders said.

“The November/December 1% [FOB NWE cargo] structure collapsed,” a trader
said. “The market has seen a lot of oil coming back from refineries that were
previously in maintenance.”

The balance month/December and December/January spreads were heard traded
50 cents/mt down and 25 cents/mt down, respectively, day on day.

“Hi-los are all drifting,” a trader said Thursday morning, adding that 1%
intermonth spreads were also under pressure. “It is hard to call [how far the
structure will soften] but there are two fresh cargo offers today and no
buyers and so [I] suspect it can drift lower.”

–Emma Kettley, emma.kettley@spglobal.com

–Ned Molloy, ned.molloy@spglobal.com

–Eleni Pittalis, eleni.pittalis@spglobal.com

–Anthony Guida, anthony.guida@spglobal.com

–Edited by Jason Lindquist, jason.lindquist@spglobal.com

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