Supply of fuel oil for the shipping industry is getting squeezed by the war-driven tightness in diesel fuel, as refiners prioritize the latter over the former, Reuters has reported, with Asia set to suffer the most severe blow.
The shortage is seen at 218,000 barrels daily in the current quarter, according to Energy Aspects, as quoted by Reuters, which would be the first quarter of a shipping fuel shortage since 2025. At that time, the shortage was much smaller, at just 6,000 barrels daily.
“Due to the protracted supply disruption in the Middle East, we expect fuel oil supply to remain critically tight in the third quarter,” a Rystad Energy analyst told the publication.
Refinery margins are running at record highs across the world as the energy crisis unfolds. The first aspect of this crisis is , of course, the tighter supply of crude from the Middle East. Yet there has also been refinery damage in the Middle East. In fact, per the International Energy Agency, as much as a fifth of that refining capacity, totaling some 9.6 million barrels daily, has been knocked out by hostilities.
In addition to the Middle East disruption, Ukrainian drone attacks have affected diesel production in Russia, to the extent that the country imposed a ban on diesel exports, adding to the tightness in supply.
In response to that tightness, refiners have prioritized diesel fuel production, which means they are making less fuel oil, which is used to fuel ships but also in some power plants. What makes the fuel oil situation worse is that refiners have to reason to change their priorities anytime soon.
“Record-low gasoline and diesel inventories will incentivise refiners globally to maximise secondary unit runs with more fuel oil feedstock barrels, in turn tightening fuel oil balances,” Energy Aspects analyst Royston Huan told Reuters.
By Irina Slav for Oilprice.com
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