Ship-Fuel Crunch to Persist Despite More Oil, Vitol Says

Ship-fuel supplies are tightening because crude oil movement and fuel-oil production are separate outcomes. Refineries decide how to process crude based on margins and demand. With refining margins exceptionally strong, they are maximizing throughput while favoring products such as diesel rather than producing more HSFO. At the same time, conflict has removed major fuel-oil volumes from the market.

Vitol estimates that the Middle East conflict reduced Persian Gulf fuel-oil supply, including Iran, by 800,000 tons per month. Ukrainian attacks on Russian refineries removed another 1 million tons monthly. North Asian refiners are also using more than 1 million tons of HSFO in November as feedstock for upgrading units.

That squeeze has lifted Singapore HSFO prices to their highest level since April. Relative to crude, Asian HSFO prices reached a seven-month high. The article suggests supplies could improve if medium and heavy crude returns to North Asian processors, reducing their need to consume HSFO as feedstock.

High-sulfur fuel oil, or HSFO, is a heavy residual fuel produced during crude-oil refining. It contains more sulfur than low-sulfur fuel oil. Ships use it as bunker fuel, meaning fuel consumed for propulsion and onboard power. Its importance comes from its established role in maritime trade and its suitability as a large-volume marine fuel.

The article focuses on HSFO because Singapore, the world’s biggest ship-fuel supplier, is seeing a sharp squeeze. Fuel-oil supply from the Persian Gulf and Russian refineries has fallen, while North Asian refiners are using HSFO as a feedstock for upgrading units. Those competing uses remove barrels from the bunker market.

As availability tightens, Singapore HSFO prices have climbed to their highest level since April. Asian HSFO also became unusually expensive relative to crude, reaching a seven-month high. The article contrasts this stressed market with the more benign market for LSFO.

The article identifies two major monthly losses from the ship-fuel supply chain. Fuel-oil supply from the Persian Gulf, including Iran, has fallen by 800,000 tons per month. Separately, Ukrainian attacks on Russian refineries have cut supply by 1 million tons per month.

Together, those disruptions remove 1.8 million tons of fuel oil every month. The losses matter because they hit supply while refiners are prioritizing other products and while some refineries are consuming HSFO themselves. More crude moving through the Strait of Hormuz cannot automatically replace the missing fuel oil.

The resulting shortage has spread into pricing. Singapore HSFO prices reached their highest level since April, and Asian HSFO rose relative to crude to a seven-month high. The figures come from Vitol Asia head Kieran Gallagher, who presented them at the Sibcon conference in Singapore.

Refineries can direct their operations toward different products, and their choices respond to profitability. The article reports that refining margins are exceptionally strong. That gives refiners a reason to maximize overall throughput and emphasize products such as diesel, rather than focus on producing more high-sulfur fuel oil.

This choice helps explain why higher crude flows through the Strait of Hormuz have not solved the HSFO shortage. More crude enters refineries, but the resulting product mix depends on refinery economics and operating decisions. Gallagher described the idea that increased crude flows would be a “silver bullet” as mistaken.

The effect is a tighter bunker market and higher prices. Singapore HSFO reached its highest price since April, while Asian HSFO rose relative to crude to a seven-month high. Unless margins or product demand change, refiners may continue favoring more valuable products over HSFO.

North Asian refineries are adding to ship-fuel pressure by using HSFO as a feedstock. Feedstock is material consumed inside a refinery to make or upgrade other products. Gallagher said these refiners are set to use more than 1 million tons of HSFO in November, following disruptions to Saudi crude exports from the Red Sea.

The mechanism is direct. When refineries cannot obtain enough medium and heavy crude, they rely more heavily on fuel oil to supply their upgrading units. Those HSFO barrels are then processed rather than sold into the bunker pool, which is the supply available to ship-fuel buyers.

Gallagher said restoring medium and heavy oil supplies to the processors would reduce their reliance on HSFO. That could release the diverted barrels back into the bunker pool. Until then, refinery demand competes with ship demand and adds to already elevated HSFO prices.

The low-sulfur fuel-oil market is more stable than HSFO because additional supply is reaching traders and bunker suppliers. China continues to export LSFO barrels. Nigeria’s Dangote refinery has also increased its operating rates since August, adding export supply to the market.

Dangote is exporting two to three Suezmax cargoes per month. A Suezmax is a large tanker cargo, so these shipments provide meaningful volumes for regional supply. Together with China’s exports, they help make the LSFO market “more benign,” in Gallagher’s description.

The market is not free of pressure. Suppliers and traders at Sibcon reported fierce competition for blending components. These components help reduce impurities, flammability and viscosity when producing LSFO grades. So LSFO has better supply support than HSFO, but production still depends on securing the materials needed to meet fuel specifications.

Crude oil is a mixture of hydrocarbons, so refineries separate it into streams and process those streams into products. Lighter, more valuable products can include diesel. Heavier residual material can become fuel oil, with sulfur content determining whether it meets HSFO or LSFO specifications. Refinery units can also upgrade heavier material into more valuable products.

The key mechanism is product choice. Refiners adjust operations to market conditions rather than turning every barrel into the same proportions of fuels. When margins are exceptionally strong, they maximize throughput and prioritize products such as diesel. North Asian refiners may also consume HSFO in upgrading units when medium and heavy crude supplies are disrupted.

That is why more crude through Hormuz does not guarantee more bunker fuel. The article reports falling regional and Russian fuel-oil supply, while HSFO prices have surged. By contrast, China’s exports and Dangote’s higher output support LSFO availability.