Fuel oil futures diverged sharply from the cost side during the September 29 domestic daytime session.

Fuel Oil

Futures: SC2611 fell 3.02% to 711.9 yuan per barrel, while front-month FU2611 rose 1.09% to 4,438 yuan per ton and front-month LU2611 gained 0.09% to 5,585 yuan per ton; next-month LU2612 added 0.59% to 5,322 yuan per ton. Prices opened lower, climbed steadily, then gave back a little into the close, with open interest declining as prices rose, as FU2611 saw its position fall by 19,038 lots to 150,615 lots in a single session. The dominant driver came from the cost side: the resumption of exports via Saudi Arabia's east-west pipeline eased supply concerns and weighed on crude prices, a bearish signal, while Trump's rejection of an Iranian proposal to reopen the strait provided an offsetting buffer. On the monthly spread, the FU three-month spread narrowed to 427 from 446, while the LU three-month spread narrowed to 440 from 469. On cracking, the repair was mainly driven by a lower cost side, with FU minus SC rebounding to minus 780.2 yuan per ton and LU minus SC rising to plus 366.8 yuan per ton. On the cross-product spread, LU minus FU narrowed to 1,147 yuan per ton, with FU slightly stronger than LU.

Physical: Spot prices did not follow futures higher. Zhoushan bonded low-sulfur was $910 per ton, down 5 from the previous reading; high-sulfur was $850 per ton, flat; and MGO was $1,465 per ton, up 15. Low-sulfur slipped slightly even as futures surged, indicating the rally was not driven by spot transactions. On regional and overseas spreads, the Zhoushan high-sulfur premium to Singapore 380CST stood at plus $110 per ton, keeping the domestic bunkering price relatively expensive; the MGO minus VLSFO spread widened to $555 per ton, up $20 from the previous reading.

Fundamental analysis: The market sits in a state where supply disruptions remain unresolved, demand is seasonally fading, and inventories and warrants provide near-month support. On the supply side, high-sulfur remains tight, with Ukrainian drones continuing to strike Russian refineries, September maintenance volumes elevated and slow to recover, and Middle East exports still constrained by the unrecovered strait navigation. On the demand side, high-sulfur marine fuel and power generation are both stable but weakening at the margin, with the national oil slurry high-sulfur mainstream negotiated price falling 50 yuan per ton from a high level. Low-sulfur supply faces expectations of tightening in October, with high freight rates curbing European arbitrage cargoes. On the profit side, diesel cracking has retreated from highs, with domestic main refinery diesel cracking at 1,450 yuan per ton, down 3.1%, loosening low-sulfur valuation support. On warrants, FU warrants fell to 2,550 tons; LU warrants stood at zero, reflecting depleted deliverable resources and providing support at the near-month lower bound. In sum, the high-sulfur supply gap remains the main bullish basis, but seasonally fading demand and cost-side giveback have shifted the fundamental marginal momentum from supply to cost.

Short-term outlook: A direction of range-bound consolidation. The support for the near month from spot structure and deliverable resources is stronger than the drag from the cost side, and the pre-holiday deleveraging environment amplifies one-sided elasticity; on payoff, spot has not followed the rally, the contraction of both products' monthly spreads limits upside space, while shrinking warrants and the absence of Russian oil make lower-bound support clear. Exercise caution with position reduction before the holiday and sell into strength on far months after it. Over the medium to long term, watch for long LU versus short FU. If overseas diesel cracking stays high and October low-sulfur supply tightens as expected, LU's relative value is likely to repair; the key variables are the pace of strait navigation and the scale of the third batch of low-sulfur export quotas.

Bitumen

Futures: During the September 28 domestic daytime session, front-month BU2611 opened lower, probed downward, then rose to an intraday high of 5,338 yuan per ton before closing at 5,246 yuan per ton, up 1.83%; next-month BU2612 rose 2.38%, outpacing the front month as capital migrated from nearby to deferred contracts. On the monthly spread, the BU three-month spread was 790 yuan per ton, narrowing 22 yuan per ton; on cracking, BU minus SC repaired to plus 27.8 yuan per ton from minus 221.1 yuan per ton. Bitumen was driven by both its own strength and a lower cost side. On the product spread, BU minus FU widened to 808 yuan per ton from 692 yuan per ton, with BU stronger than FU.

Physical: Spot strengthened in tandem, with the average market price of heavy-duty bitumen across major regions at 6,388 yuan per ton and Shandong at 6,350 yuan per ton. Regional spreads continued to converge, with East China minus Shandong at 210 yuan per ton and South China minus Shandong at 200 yuan per ton. The basis stayed high, at 1,104 on a closing-price basis for the November contract and 1,581 yuan per ton for the December contract. On premiums and discounts, diluted bitumen stood at minus $23.8 per barrel.

Fundamental analysis: The market is in a relatively tight pattern of rigid low supply, demand suppressed by high prices, and historically low inventories, with directional support unchanged but marginal momentum shifting from supply to demand. Supply-side constraints are relatively hard, as the 92-refinery capacity utilization rate stood at 23.4%, down 1% from the previous reading; the 77 heavy-duty bitumen refiners were at 23.7%, down 0.9%; and weekly output was 382,000 tons, down 45.5% year on year. Demand-side negative feedback has become visible, with the 69 modified bitumen refiners at 10.2% capacity utilization, down 8.5% year on year, and week 39 shipments at 303,500 tons, down 6.2% from the previous reading. Mainstream transactions clustered at the low end, downstream acceptance of high prices weakened, pre-holiday rush work demand fell, and midstream and downstream purchasing enthusiasm declined. Inventories remain a firm support, with the week ending September 24 showing refinery inventories of 389,000 tons plus social inventories of 494,000 tons, totaling 947,000 tons, down 43.7% over five weeks. On profit, bitumen weekly gross margin stood at 402.39 yuan per ton, markedly above the minus 177 yuan per ton for coking, so residual oil continues to flow preferentially to bitumen. In sum, supply contraction and ultra-low inventories provide lower support, while demand-side resistance to high prices is the headwind.

Short-term outlook: A direction of range-bound consolidation. On trading logic, the cost-side geopolitical situation is unresolved, and although physical strait flows have improved, this is unconfirmed; the zeroing of warrants on its own structure, along with low refinery and social inventories, gives clear near-month lower-bound support. Seasonally, October is the final stretch of northern rush work and November shifts to winter storage, so demand trends down seasonally. Focus on closing out monthly spread contango trades and buying low and selling high on the cross-product BU minus FU spread. Watch for building short BU-Brent cracking positions on rallies.