LONDON: A shortage of fuel oil used in ships and power plants looms in the third quarter as refiners increasingly squeezed by wars that have disrupted both crude processing and tanker traffic prioritise output of diesel and other products at its expense.
While crude oil has avoided major price spikes in recent months, refined product prices have soared as strikes damage refineries in Russia and the Middle East and curbs on ship traffic choke flows.
China has also cut refining capacity and exports to avoid burning stocks.
Tightening supply threatens to further raise costs for shipowners and power generators already dealing with war-related disruptions. Higher bunker fuel costs could also in turn feed into shipping rates.
Asia will be hardest-hit as it is most reliant on Gulf flows disrupted by the Iran war, with Singapore, the world’s largest bunker hub, importing more than half its nearly one million barrels a day of demand, according to import data from Kpler. Consultancy Rystad has a similar outlook.
The deficit is expected to hit 218,000 barrels per day (bpd) in the third quarter, consultancy Energy Aspects has forecast, the first shortfall it has estimated since the third quarter of 2025, when it was a marginal 6,000 bpd.
“Due to the protracted supply disruption in the Middle East, we expect fuel oil supply to remain critically tight in the third quarter,” Rystad analyst Valerie Panopio said.
Fuel oil joins petrol, diesel and jet fuel among the refined products struggling to keep up with demand.
US diesel prices hit record highs last Friday as renewed US-Iran hostilities and Ukrainian attacks on Russian refineries increased supply disruptions.
Refiners opting to produce some of those other products to tap fatter profits has meant fuel oil has been hit harder.
Nigeria’s 650,000-bpd Dangote refinery, for example, has ramped up petrol, diesel and jet fuel exports, while its fuel oil exports have dropped, according to Kpler.
Dangote and other refineries can use fuel oil as feedstock in secondary refining units to make other fuels.
“Record-low petrol and diesel inventories will incentivise refiners globally to maximise secondary unit runs with more fuel oil feedstock barrels, in turn tightening fuel oil balances,” Energy Aspects analyst Royston Huan said.
Perol stocks independently held in the Amsterdam-Rotterdam-Antwerp hub hit their lowest level in nearly five years on Aug 27.
US East Coast distillate inventories, which include diesel, fell to a record low in the week to Aug 28.
Fuel oil storage levels and prices already reflect the pressure.
Stocks are some 30% below three-year seasonal averages in top hubs Singapore, Amsterdam-Rotterdam-Antwerp and Fujairah, data compiled by Reuters showed.
Ships sailing longer routes to avoid key oil chokepoint the Bab el-Mandeb strait or the Red Sea altogether due to threats by Houthi militants also increase demand, Panopio noted.
The price of the main shipping fuel, very low sulphur fuel oil, is up 76% since the Iran war started to just under US$825 a tonne, or US$130 a barrel, in Singapore as of Sept 1, data from bunker price platform ZeroNorth showed. That outstrips a 40% rise in benchmark Brent crude oil in the same period. — Reuters
