Ship-Fuel Shortage Looms as War-Disrupted Refiners Prioritize Other Products
By Enes Tunagur and Jeslyn Lerh
LONDON, Sept 7 (Reuters) - A shortage of fuel oil used by ships and power plants is looming in the third quarter as refiners, squeezed by war-related disruptions to crude processing and tanker traffic, prioritize more profitable products such as diesel and jet fuel.
Crude oil has avoided major price spikes in recent months, but refined product markets are showing fresh strain. Air strikes and drone attacks on refineries in Russia and the Middle East, shipping restrictions, and reduced Chinese refinery output and exports have all tightened product supply. Fuel oil is now one of the most exposed products, and the squeeze threatens to raise costs for shipowners and power generators already navigating conflict-driven disruptions. Higher bunker fuel costs could, in turn, feed into freight rates.
Asia is expected to be hardest hit because it is most reliant on Gulf supplies disrupted by the Middle East conflict. Singapore, the world's largest bunkering hub, imports more than half of its nearly 1 million barrels per day of fuel oil demand, according to data from Kpler. Rystad holds a similar outlook.
Energy Aspects forecasts a fuel oil deficit of 218,000 barrels per day (bpd) in the third quarter, the first shortfall it has estimated since the third quarter of 2025, when the deficit was a marginal 6,000 bpd.
"Because of the protracted supply disruption in the Middle East, we expect fuel oil supply to remain critically tight in the third quarter," Rystad analyst Valerie Panopio said.
Fuel oil now joins gasoline, diesel and jet fuel among refined products struggling to keep up with demand. U.S. diesel prices hit record highs on Friday as renewed U.S.-Iran hostilities and Ukrainian attacks on Russian refineries worsened supply concerns.
The shift away from fuel oil is partly a matter of refinery economics. With gasoline and diesel inventories at unusually low levels, many refiners are channeling fuel oil into secondary units that convert it into lighter, more valuable fuels. Nigeria's 650,000-bpd Dangote refinery, for example, has ramped up diesel, gasoline and jet fuel exports while cutting fuel oil exports, according to Kpler.
"Record-low gasoline and diesel inventories will incentivize refiners globally to maximize secondary unit runs with more fuel oil feedstock barrels, in turn tightening fuel oil balances," Energy Aspects analyst Royston Huan said.
Independent gasoline stocks in the Amsterdam-Rotterdam-Antwerp hub fell to their lowest in nearly five years on Aug. 27, while U.S. East Coast distillate inventories, which include diesel, hit a record low in the week ended Aug. 28.
Fuel oil storage levels already reflect the pressure. Stockpiles in Singapore, Amsterdam-Rotterdam-Antwerp and Fujairah are about 30% below their three-year seasonal averages, data compiled by Reuters shows.
Longer voyages by ships avoiding the Bab el-Mandeb strait and the Red Sea because of Houthi militant threats are also increasing fuel demand, Panopio noted.
The price of very low sulphur fuel oil, the main marine fuel, has climbed 76% since the conflict began to just under $825 a metric ton, or about $130 a barrel, in Singapore as of Sept. 1, according to data from bunker price platform ZeroNorth. Benchmark Brent crude has risen about 40% over the same period.
On the supply side, Ukrainian drone attacks have cut Russian refinery output. Russia's fuel oil exports fell to a record low of 591,000 bpd in August, down from an average of more than 860,000 bpd in 2025, according to Kpler data going back to 2017.
Middle East fuel oil exports averaged 447,000 bpd from March through August, down 45% year on year, Kpler data showed. Outages at Kuwait's Al-Zour refinery, a top fuel oil exporter, have reduced its exports to just a single cargo since March, compared with around 191,000 bpd in January and February.
(Reporting by Enes Tunagur in London and Jeslyn Lerh in Singapore; Editing by Alex Lawler, Dmitry Zhdannikov and Jan Harvey)