Middle East fuel oil exports down by at least 800,000 tonnes — OilPrice

Global fuel oil supplies are shrinking amid steady demand from shipping. Exports of high-sulfur fuel oil from the Middle East are now at least 800,000 tonnes per month lower than they were before the war, OilPrice reports, citing Kieran Gallagher, head of Vitol’s Asian business.

Risks of shipments through the Strait of Hormuz

According to Gallagher, producers are forced to pay higher freight rates and risk premiums to move cargoes through the Strait of Hormuz. This maintains uncertainty over future supplies from the region.

Fuel oil has traditionally been used in shipping. At the same time, some Asian refineries have begun replacing crude oil with it as feedstock due to disruptions to Saudi exports through the Red Sea. According to the Vitol representative’s estimate, such facilities have already purchased about 1 million tonnes of cargoes for delivery in November.

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Decline in Russian supplies

Another factor has been Ukrainian drone strikes on oil refineries in the Russian Federation, an aggressor state. Gallagher estimated the resulting reduction in fuel oil supply at approximately 1 million tonnes per month.

Replacing fuel oil with crude oil as refinery feedstock could ease the shortage, but shipping risks in the Strait of Hormuz stand in the way. According to LSEG data cited by Reuters, the spot premium for fuel oil for commercial shipping rose to nearly $50 per tonne, compared with $5.10 at the end of February.

Before the war, Middle Eastern exports of high-sulfur fuel oil averaged 3.7 million tonnes per month, according to Kpler data cited by Reuters.