Fuel Oil Becomes Asia’s Next Cost Shock
Singapore’s shipping-fuel market is adding another layer of cost to Asian trade. Disrupted supplies from the Middle East and Russia, resilient bunker demand and prohibitive freight rates have pushed high-sulphur fuel oil above the price of the crude used to produce it. Seasonal relief from Gulf producers and additional Chinese export allowances could ease the squeeze towards year-end,…
The recent fuel oil price surge in Asia has created a significant cost shock for trade in the region. Disruptions in fuel supplies from the Middle East and Russia, coupled with high freight rates, have pushed high-sulphur fuel oil (HSFO) above the price of the crude used to produce it. Seasonal relief from Gulf producers and additional Chinese export allowances may temporarily ease the pressure towards year-end, but a return to pre-war pricing relationships seems unlikely.
Singapore's November crack against Dubai crude soared above $10/bbl in mid-October, marking a reversal of more than $15/bbl from the pre-war period. This price discrepancy highlights the unusual expense of fuel oil itself. The regional imbalance in the global fuel oil market is evident, with Singapore's HSFO swap spread peaking at $95/t, equivalent to around $15/bbl, before easing to $88/t. European and US Gulf Coast cracks further illustrate the concentration of the shortage in Asia.
The supply losses have left Singapore particularly vulnerable, with Middle Eastern shipments to the country averaging only 40,000-50,000 b/d in recent months, down from around 130,000 b/d in July. Russia, which initially helped fill the gap, has since cut its imports to just 25,000 b/d due to refinery disruptions from Ukrainian drone attacks. This has exposed Singapore to shortages from both major sources.
Despite resilient demand in Asia, consumption has shifted towards HSFO, rising by around 10% year-on-year to approximately 17.5 million tonnes in the first nine months of the year. The expansion of scrubber-equipped fleets, which allow the use of sulphur-heavy HSFO instead of cleaner VLSFO, contributes to the demand growth. However, the longer voyages required for alternative supply routes increase sailing distances and fuel consumption, adding to the cost burden.
China's HSFO imports have rebounded to 3.3 million barrels in October, driven by Shandong's independent refiners using alternative feedstocks when crude import access is constrained. While this demand may decrease in November-December due to higher HSFO prices, Chinese buying behavior will still be influenced by individual refiners' crude access quotas and product margins.
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