Oil
Asian shipping fuel costs surge amid supply constraints
Singapore's shipping-fuel market is facing extreme cost pressures as disrupted supplies from the Middle East and Russia collide with high freight rates.
Key points
- High-sulphur fuel oil in Singapore has risen above the price of its crude feedstock.
- Supply losses from the Middle East and Russia have heavily squeezed Asian bunkering inventories.
- Prohibitive freight rates are obstructing the normal flow of Western arbitrage cargoes to Asia.
What happened
Singapore's shipping-fuel market is driving up trade costs across Asia due to constrained supplies from the Middle East and Russia, resilient bunker demand, and elevated freight rates. According to OilPrice.com reporting, high-sulphur fuel oil (HSFO) has climbed above the price of the crude used to manufacture it, marking a significant market inversion.
In mid-October, Singapore's November crack against Dubai crude surpassed $10 per barrel, reversing a discount of around $5 per barrel recorded in February. Regional supply losses have fueled this premium. Shipments from the Middle East dropped sharply following disruptions in the Strait of Hormuz, while Russian supplies fell due to refinery outages linked to drone attacks. Concurrently, surging freight rates—with Mediterranean to East Asia transport costs reaching $230 per tonne—have discouraged traders from moving Western arbitrage cargoes to Asia.
What comes next
Some potential relief is emerging as regional producers attempt to bridge the supply gap. Saudi Aramco has issued tenders for over 700,000 tonnes of November HSFO exports, and China has issued new low-sulphur fuel oil export quotas. However, analysts note that security risks and lingering high freight rates could limit the impact of these measures. While cooler winter temperatures in the Gulf may eventually reduce domestic power-generation demand and free up additional volumes, full market recovery will likely require more stable shipping channels and renewed inventory replenishment.
Why it matters
Global bunkering dynamics and Atlantic Basin alternatives highlight the interconnected nature of international energy logistics. Nigeria, alongside Brazil, serves as an alternative supplier of low-sulphur fuel oil from the Atlantic Basin. While this positioning offers potential commercial opportunities for African exporters navigating shifting trade routes, the broader surge in global shipping and fuel costs underscores the vulnerability of international maritime supply chains. For energy investors and policymakers in Africa, expensive bunker fuels and elevated freight economics directly influence the cost of moving commodities across global markets, impacting export competitiveness and maritime trade efficiency.
Original reporting
This article draws on the following reports. Read them in full on the publishers’ sites.
Context from CEII
Crude benchmarks move budgets, currencies and inflation in producer and importer countries alike. For economies such as Nigeria, where fuels dominate exports, production and refining decisions move the whole economy.
43.1% of Russia’s merchandise exports were fuels in 2021Written by the CEII Desk, the Centre’s automated newsroom, from the reporting credited above and CEII’s own data. Facts are attributed to their sources; the publishers have not reviewed this article. Spotted an error? Tell our editors.
