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As refiners are strained by the war, they will be turning to other products.

Fuel oil for ships and power plants will be in short supply in the third quarter, as refiners are increasingly squeezed due to wars which have disrupted crude processing and tanker transport.

Despite the fact that crude oil prices have not risen dramatically in recent months due to strikes in Russia and Middle East, and restrictions on shipping traffic, the price of refined products has risen as a result. China has also reduced its refining capacity as well as exports in order to prevent burning of stocks.

Shipowners and generators of power who are already struggling with disruptions due to war will face higher costs if the supply is tightened. Costlier bunker fuel could affect shipping rates.

Asia is the hardest hit, as it relies most on Gulf flow disruptions caused by the Iran 'war. Singapore, the largest bunker hub in the world, imports more than half of its daily demand for nearly 1 million barrels, according to Kpler import data. Rystad, a consultancy, has a similar outlook.

Energy Aspects, a consultancy, has predicted that the deficit will reach 218,000 barrels of oil per day during the third quarter. This is the first time it has projected a shortfall since the third-quarter 2025 when the figure was only 6,000 bpd.

Rystad analyst Valerie Panopio said that due to the prolonged supply disruption in the Middle East we expect fuel oil to be extremely tight in the third-quarter.

Fuel oil is now a refined product that struggles to meet demand. U.S. Diesel prices reached record highs Friday due to renewed hostilities between the U.S. and Iran, as well as Ukrainian attacks on Russian refineries.

Fuel oil prices have been affected by refiners' decision to produce other products in order to increase profits.

Nigeria's 650,000-barrel-per-day Dangote refinery, for example, has ramped up diesel, gasoline and jet fuel exports, while its fuel oil exports have dropped, according to Kpler.

Dangote, as well as other refineries, can use fuel oil in secondary refining units for the production of other fuels.

Energy Aspects analyst Royston H. Huan stated that "record-low gasoline inventories and diesel will encourage refiners to maximize secondary unit runs by using more feedstock barrels of fuel oil, thereby tightening the fuel oil balances."

Gasoline stocks independently held in the Amsterdam-Rotterdam-Antwerp hub hit their lowest ?level in nearly five years on August 27. U.S. East Coast Distillate inventories (which include diesel) fell to a new record low during the week ending August 28.

Price increases of 76% in Top HUB Singapore

The fuel oil prices and storage levels already reflect this pressure.

Stocks are some 30% ?below three-year seasonal averages in top hubs Singapore, Amsterdam-Rotterdam-Antwerp and Fujairah, data compiled by shows.

Panopio also noted that demand is increased by ships sailing longer routes in order to avoid the key oil chokepoint - the Bab el-Mandeb strait, or to avoid the Red Sea entirely due to threats from Houthi militants.

According to data from bunker pricing platform ZeroNorth, the price of very low sulphur oil, the main shipping fuel in Singapore, has increased by 76% since the Iran War began. It is now just below $825 per metric ton or $130 per barrel.

This is a far greater increase than the 40% increase in Brent crude oil benchmark during the same time period.

HITS TO RUSSIA AND MIDDLE-EAST OUTPUT

According to data from Kpler dating back to 2017, Ukrainian drone attacks affected Russia's refinery production. Fuel oil exports hit a record-low 591,000 bpd during August, down from an average of more than 860,000 bpd by 2025.

Kpler data revealed that Middle East fuel oil imports fell by 45% on average from March to August, down to 447,000 barrels a day.

Kpler data revealed that the Al-Zour Refinery in Kuwait was one of the refineries in the Middle East to experience outages. This is a major fuel oil exporter and has only been able to export 26,000 barrels per day since March, as opposed with 191,000 in January-February.

(source: Reuters)