If you are slowly leaning out lean surge isn't a complete misfire. It feels like one and you lose power like one, but the gasses still burn if you have the ignition source to light it. It just burns so slowly that the cylinder never reaches a good working cylinder pressure. Lean surge is very bad for exhaust valves because the air fuel mixture is still burning when it passes over the valve. That's the stage where people ruin valves from running lean and why it is considered a bad idea to lean out past stoich.
The O2 sensor reads O2. If you get a more complete combustion O2 stats fall which the computer reads as rich, just like your chart shows.
You have it totally backwards. Complete combustion (AKA maximum FE) happens near the noX peak and HC minimum where there is still 1-2% unburned O2 left in the exhaust. The O2 sensor will show a LEAN mixture in that situation.
What is your goal? To burn all the O2 going into the engine or all the fuel? You can't do both at the same time. In order to burn the last 1% of O2 inside the engine instead of the catalytic converter, you need to burn an extra 14% fuel over stoich. Great for peak power, not so great for FE. Most people around here want to burn all the fuel because they have to pay money for it, as opposed to the O2 which is free.