Fuel Oil Becomes Asia’s Next Cost Shock

Singapore’s shipping-fuel market is adding another layer of cost to Asian trade. Disrupted supplies from the Middle East and Russia, resilient bunker demand and prohibitive freight rates have pushed high-sulphur fuel oil above the price of the crude used to produce it. Seasonal relief from Gulf producers and additional Chinese export allowances could ease the squeeze towards year-end, particularly for very-low-sulphur fuel oil. But with replacement cargoes expensive to transport and Russian supplies vulnerable to further disruption, a return to pre-war pricing relationships looks harder to achieve.For shippers, the sharpest move has been in high-sulphur fuel oil, or HSFO. Singapore’s November crack against Dubai crude soared above $10/bbl in mid-October, compared with a discount of around $5/bbl in February (i.e. the pre-war period). That represents a reversal of more than $15/bbl for a product normally worth less than its crude feedstock. It also means higher bunker costs reflect more than rising oil prices: fuel oil itself has become unusually expensive.The regional disproportion in the global fuel oil market is equally striking. The Singapore–Rotterdam HSFO swap spread was at a record $95/t on October 7 (equivalent to approximately $15/bbl), before it eased to $88/t. With the European HSFO crack lingering around -$10/bbl to Brent and the US Gulf Coast crack falling below -$20/bbl, Singapore’s geographical premium illustrates how heavily the shortage is concentrated in the Asian market.The supply losses are the main reason behind that premium. Middle Eastern shipments of HSFO and VLSFO to Singapore averaged around 100,000 b/d in 2025. They disappeared in April and May following disruption to Hormuz shipping, briefly recovered to 130,000 b/d in July, then retreated to around 40,000–50,000 b/d in recent months. Russia initially helped replace missing Gulf barrels. Its HSFO shipments to Singapore reached around 180,000 b/d in April, above the 100,000–150,000 b/d typical imports of 2025. By September, however, they had fallen to just 25,000 b/d as refinery disruptions due to Ukrainian drone attacks impacted residue exports. Losing much of that substitute supply has left Singapore exposed to simultaneous shortages from two major sources. The two main oil fuel markets – HSFO and VLSFO - have different supply networks. Russia and Middle Eastern producers, including Iraq, Saudi Arabia and Iran, are important sources of HSFO. Kuwait supplies both grades, with its Al-Zour refinery particularly significant for VLSFO supply, while Brazil and Nigeria provide alternative low-sulphur supplies from the Atlantic Basin. This gives VLSFO buyers more geographical diversification, although longer voyages make those alternatives costly.Despite disruptions in fuel oil supply, demand in Asia has proved more resilient. Singapore sold 4.7 million tonnes of bunker fuel in September, only 1% below a year earlier, compared with average declines of around 4% in July and August. Within that total, consumption is shifting towards HSFO: sales rose around 10% year-on-year to roughly 17.5 million tonnes in January–September. The expanding scrubber-equipped fleet (allowing using sulphur-heavy HSFO instead of “cleaner” VLSFO) helps explain why weaker VLSFO requirements need not signal weaker overall shipping demand.Longer voyages reinforce the pressure. Replacing Gulf cargoes with supplies from the US Gulf Coast or West Africa increases sailing distances and fuel consumption. Avoidance of insecure bunkering locations can also redirect purchases towards Singapore. The resulting feedback is costly: disrupted trade requires more shipping, while the fuel needed to sustain those longer journeys becomes harder to source.China adds another layer of complexity to fuel oil markets. Its HSFO imports reached 3.3 million barrels in October so far, recovering from a total of just 300,000 barrels in June, although still below March’s 9.4 million barrels. Much of this demand is driven by Shandong’s independent refiners, which use suitable fuel oils (including but not limited to Russia’s M100 grade) as alternative feedstocks when crude import access is constrained. That spurt of autumn demand should nevertheless decrease into November-December given the recent HSFO price trend. Higher HSFO premiums erode the advantage of processing fuel oil, particularly after taxes, freight and conversion costs are included. Chinese buying behaviour will therefore limit the rising demand trend by weakening as prices rise. But it doesn’t mean that purchases will disappear altogether: individual refiners’ crude access quotas and product margins will still determine their economics.Normally, Singapore’s premium would attract more Western supply, but freight is obstructing that adjustment. As the Mediterranean–East Asia freight rate stands at $230/t for a 135,000-tonne cargo, transport alone costs approximately $36/bbl for HSFO or $34/bbl for VLSFO. Exactly a year ago, the same voyage would have cost $41/t, with the corresponding per-barrel freight costs coming in at just $6.5/bbl and $6.1/bbl (the difference in rates reflects fuel density: a tonne of lighter VLSFO contains slightly more barrels).Those freight costs disincentivize the arbitrage created by weaker European cracks. Singapore’s estimated October VLSFO arrivals from Western markets are showing flows of 1.5 million–1.6 million tonnes, down from 1.6 million–1.8 million in September, as expensive shipping undermined arbitrage economics. Thus,lower prices at the loading port offer limited relief when transportation absorbs the discount.However, there have been some recent signs of relief for the Asian fuel market. The Singapore M1-M2 time spread for VLSFO narrowed from around $38/t in early October to $32/t by October 23. China’s latest 1.07-million-tonne allocation of VLSFO export quotas also increases the scope for domestic production to serve regional bunkering demand, reducing potential buying interest in the wider Northeast Asian region. The same easing appeared to have happened with HSFO – the M1-M2 spread narrowed from a peak of $59/t to $56/t. The primary reason behind this lies in Saudi Aramco issuing tenders for over 700,000 tonnes of HSFO for November exports, to be loaded from Ras Tanura and Jubail. Whilst the Asian markets initially saw this news with relief, there is a genuine risk of these cargoes being trapped inside should the security situation around the Strait of Hormuz deteriorate after the US mid-term elections are over.Cooler Gulf temperatures in the winter should simultaneously ease demand for fuel oil used in power generation, freeing up more supply for bunkering (Saudi Arabia and Kuwait famously use their fuel oil, along with crude, for electricity generation). That said, should high freight rates persist, incremental fuel oil cargoes from Kuwait’s Al-Zour refinery could first ease shortages in Fujairah before they have any tangible impact on markets farther east. But in the now, Asian fuel oil supply remain tight: Singapore VLSFO delivery lead times were reportedly 12–15 days mid-October. Planned refinery maintenance and further disruptions to Russian supplies could slow replenishment of imports despite weaker seasonal demand.Any easing in Asia’s fuel oil tightness is therefore likely to be uneven. VLSFO supply has clearer prospects for growth, while HSFO remains more vulnerable to Russian supply losses amidst stable demand from scrubber-equipped ships transporting oil to the region over long distances. Even if fuel oil cracks weaken over the upcoming weeks, the prices themselves may not fall much while crude remains expensive. Lasting relief in Singapore will require more fuel and reliable and cheaper shipping, and for this to happen, seasonal changes alone will not be enough.By Natalia Katona for Oilprice.comMore Top Reads From Oilprice.comU.S. Partner in Venezuela Oil Deal Looks to Hike Crude ProductionU.S. Diesel at $6.30 a Gallon as First Russian Cargo Sets Sail for New YorkOil India Strikes Natural Gas in Shallow Offshore Basin