The reduction in fuel oil supply due to recent tensions in the Middle East has had significant impacts on the marine fuel market. According to Kieran Gallagher, Head of Asia at Vitol Group, this reduction amounts to 800,000 tons per month due to decreased production from the Gulf, including Iran, and 1 million tons per month due to Ukrainian attacks on Russian refineries.
Increased Demand for Fuel Oil
Gallagher stated at the Sibcon conference in Singapore that increased crude oil flows from the Strait of Hormuz are being considered as a solution to the fuel oil shortage. However, he emphasized that increased crude oil production does not necessarily mean an increase in high-sulfur fuel oil production. Refining margins have been extremely strong, and refiners have been operating at maximum capacity to take advantage of these margins.
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Price Increases in the Fuel Oil Market
The supply shortage caused by two wars in the Middle East has pushed high-sulfur fuel oil (HSFO) prices in Singapore to their highest level since April. HSFO prices in Asia have reached a high relative to crude oil prices and have increased to the highest level in the past seven months. Demand for HSFO as a refinery feedstock has also added to the pressures, with refiners in North Asia forecasting over 1 million tons of HSFO for use in upgrading units in November.
While the high-sulfur fuel oil market is under pressure, the situation for low-sulfur fuel oil (LSFO) is relatively better. This market is benefiting from continued exports from China and increased operational rates at Dangote's refinery in Nigeria, which has been exporting two to three Suezmax cargoes per month since August. However, there are also some pressures in this sector, as suppliers and traders at Sibcon reported intense competition for the blend components used to reduce impurities and viscosity in marine fuel.
Shipowners are facing a highly fragmented fuel market, as disruptions caused by Middle Eastern tensions have raised concerns about the availability and quality of supply. Saudi Arabia's Minister of Energy, Prince Abdulaziz bin Salman, is seeking ways to increase the capacity of its oil pipelines to destinations outside the Gulf to 10 million barrels per day within the next two to three years.
Meanwhile, Indian refiners have reduced their purchases of Russian crude oil for November delivery due to increased competition from China. This price increase comes as buyers are able to access alternative cargoes from the Middle East.
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