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.