Geopolitics and Tight Supply Keep Fuel Oil Prices Volatile

Fuel oil prices remain volatile at high levels due to persistent geopolitical disruptions and tight supply. In the Shanghai region, low-sulfur fuel oil prices were lowered on September 23, with ex-warehouse prices for 180cst fuel oil set at 7,400 RMB/tonne and 120cst priced at 7,500 RMB/tonne.

Overseas developments are impacting the spot market, as a proposal to suspend diesel exports for 90 days has been put forward to curb high energy prices. However, there is significant internal disagreement regarding this plan, with some arguing that it may drive up future fuel prices and push up costs of gasoline and aviation kerosene.

Supply-side constraints continue to tighten, despite a marginal easing in September due to increased arrivals of high-sulfur fuel oil. Loading constraints on cargoes from the Middle East and Russia are hindering overall supply, while high freight rates are limiting East-West arbitrage flows. The peak winter season for diesel is approaching, which will likely divert blending components away from low-sulfur fuel oil, further tightening its supply.

Geopolitical variables continue to play a significant role in the market, with current inventories in Singapore at low levels and uncertainty surrounding refined product supply recovery providing strong downside support for spot prices. The Saudi East-West Pipeline and navigation through the Strait of Hormuz are critical to any potential improvement in fuel oil supply.