Refiners are prioritising diesel, gasoline and jet fuel as disruptions in Russia and the Middle East squeeze fuel oil supplies, with the global deficit forecast to reach 218,000 barrels per day in the third quarter.
A growing shortage of fuel oil used by ships and power plants is threatening to push up costs for shipowners and generators as wars disrupt refinery operations and tanker traffic, while refiners prioritise more profitable products such as diesel, gasoline and jet fuel.
The tightening supply is particularly significant for Asia, which remains heavily dependent on fuel flows from the Gulf. Singapore, the world’s largest bunker hub, imports more than half of the nearly 1 million barrels per day of fuel oil it consumes, according to Kpler data.
Energy consultancy Energy Aspects expects the fuel oil market to face a deficit of 218,000 barrels per day in the third quarter. That would mark the first projected shortfall since the third quarter of 2025, when the deficit was estimated at just 6,000 barrels per day.
“Due to 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 told Reuters.
Refiners favour higher-value fuels
The pressure on fuel oil is being intensified by refiners’ response to stronger demand and tighter inventories for other petroleum products.
Gasoline, diesel and jet fuel are also facing supply constraints, but refiners have an incentive to maximise production of those fuels because of stronger margins. As a result, fuel oil output is taking a hit.
More from BusinessNigeria’s 650,000-barrel-per-day Dangote refinery, for example, has increased exports of diesel, gasoline and jet fuel while reducing fuel oil exports, according to Kpler data.
Fuel oil can also be used as feedstock in secondary refining units to produce other fuels, giving refiners another reason to redirect available supplies towards products that command higher returns.
Energy Aspects analyst Royston Huan said record-low gasoline and diesel inventories were encouraging refiners to maximise secondary-unit operations using fuel oil feedstock, further tightening the fuel oil balance.
Singapore fuel prices surge
The tightening market is already being reflected in fuel oil prices and inventories.
Fuel oil stocks in Singapore, Amsterdam-Rotterdam-Antwerp and Fujairah are about 30 per cent below their three-year seasonal averages, according to data compiled by Reuters.
At the same time, ships taking longer routes to avoid the Bab el-Mandeb chokepoint and the Red Sea are consuming more bunker fuel, adding to demand.
The price of very low sulphur fuel oil, the main shipping fuel, rose 76 per cent from the start of the Iran war to just under $825 per metric ton, or about $130 a barrel, in Singapore as of September 1, according to bunker price platform ZeroNorth.
That increase was substantially larger than the 40 per cent rise in benchmark Brent crude over the same period.
Higher bunker prices could eventually feed into shipping rates, increasing costs across global trade at a time when shipowners are already dealing with longer voyages and war-related disruptions.
Russia, Middle East exports fall
Supply disruptions are also emerging from major refining centres.
Ukrainian drone attacks have affected Russian refinery output, with Russia’s fuel oil exports falling to a record-low 591,000 barrels per day in August, according to Kpler data dating back to 2017. That compares with an average of more than 860,000 barrels per day in 2025.
Middle Eastern fuel oil exports also declined sharply, falling 45% year on year to an average of 447,000 barrels per day between March and August.
The disruptions have hit major exporters such as Kuwait’s Al-Zour refinery. The refinery, a key source of fuel oil exports, shipped only one 26,000-barrel-per-day cargo since March, compared with about 191,000 barrels per day in January and February, Kpler data showed.
The supply squeeze comes as the wider refined-products market is also under pressure. While crude oil prices have not experienced a comparable surge in recent months, refined fuel prices have risen as refinery strikes, attacks and restrictions on tanker traffic disrupt supplies.
China has also reduced refining capacity and exports in an effort to preserve domestic stocks, adding another constraint to the global refined-products market.
For shipping, the immediate concern is the combination of higher fuel consumption from longer voyages and a shrinking pool of available bunker fuel. For refiners, meanwhile, strong demand for diesel, gasoline and jet fuel is creating an incentive to divert feedstock away from fuel oil.
The result is a tightening market in which disruptions to refineries and shipping routes are feeding directly into the cost of moving goods around the world.
