Oil
Global fuel oil shortage deepens on supply disruptions
Global fuel oil supplies are tightening as conflict in the Middle East and attacks on Russian infrastructure restrict exports, driving up spot market premiums.
Key points
- Middle East high-sulfur fuel oil exports have dropped by at least 800,000 tons a month.
- Ukrainian drone attacks have reduced Russian refinery output by roughly 1 million tons monthly.
- Spot market premiums for commercial shipping fuel oil have surged to nearly $50 per ton.
What happened
Global fuel oil supplies are tightening significantly as shipments from the Middle East and Russia face severe disruptions, according to OilPrice.com. Export volumes of high-sulfur fuel oil from the Middle East have fallen by at least 800,000 tons monthly compared to pre-war levels, according to data from Kpler cited by Reuters. Vitol executives reported that producers are incurring higher freight rates and risk premiums to move cargoes through the Strait of Hormuz.
Simultaneously, Ukrainian drone attacks on Russian refineries have cut monthly supplies from Russia by approximately 1 million tons. Strong demand from the shipping industry, combined with Asian refiners shifting to high-sulfur fuel oil as a feedstock due to disrupted Saudi crude exports, has further strained availability.
Why it matters
The supply contraction has pushed the spot market premium for commercial shipping fuel oil to nearly $50 per ton, up sharply from $5.10 per ton in late February, based on LSEG figures reported by Reuters. Kieran Gallagher of Vitol noted that producers recognize the critical importance of oil revenues to national budgets, yet rising risk premiums and shipping bottlenecks continue to inject substantial uncertainty into global markets.
What comes next
Market participants indicate that alleviating the shortage depends heavily on the ability to substitute fuel oil with crude oil as a refinery feedstock. However, ongoing security risks in key transit corridors such as the Strait of Hormuz continue to complicate logistics and hinder efforts to normalize supply chains.
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.
