Global Fuel Oil Shortage Deepens as Middle East and Russia Supplies Collapse
Global fuel oil supply is shrinking while demand for the fuel from the shipping industry remains robust, suggesting further supply pain down the road. Exports of high-sulfur fuel oil from the Middle East are running at a rate that is at least 800,000 tons a month lower than it was before the war, the head of Asian operations at Vitol said at an industry event. “Producers are paying higher freight…
The global demand for fuel oil is outpacing supply, with the shipping industry's need for the fuel remaining strong, indicating potential future supply issues. According to Kieran Gallagher, head of Asian operations at Vitol, exports of high-sulfur fuel oil from the Middle East have decreased by at least 800,000 tons per month since the war began, Reuters reported.
Gallagher highlighted that producers are paying higher freight rates and risk premiums to transport these cargoes out of Hormuz due to the region's significance to their national budgets. The risk premium for these exports remains high, adding to the uncertainty about the future supply from the region. Gallagher noted that some Asian refiners have started switching from crude oil to high-sulfur fuel oil as feedstock due to the disruption of Saudi exports from the Red Sea.
As a result, these refiners have secured cargoes totaling 1 million tons for delivery in November. Additionally, Ukrainian drone attacks on Russian refineries have further reduced supply, estimated by Gallagher to be around 1 million tons per month. Gallagher emphasized the need to replace fuel oil with crude as a refinery feedstock, but this remains challenging due to shipping risks in the Strait of Hormuz.
Consequently, the premium for fuel oil in the spot market for commercial shipping has risen to nearly $50 per ton, up from $5.10 per ton in late February, according to LSEG data reported by Reuters. Before the war between the U.S. and Iran and Israel began, high-sulfur fuel oil exports from the Middle East averaged 3.7 million tons monthly, as per Kpler data cited by Reuters.
The ongoing hostilities in the Strait of Hormuz have had a significant impact on refined fuel exports.
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