Key facts
- High-sulphur fuel oil prices have surpassed crude oil prices in Asia.
- Disrupted Middle Eastern and Russian supplies are key drivers of the price increase.
- Resilient bunker demand and prohibitive freight rates are exacerbating the cost shock.
- Singapore's HSFO premium illustrates a shortage concentrated in the Asian market.
- Demand for HSFO is increasing due to a growing fleet of scrubber-equipped ships.
- High freight costs are undermining arbitrage opportunities for Western supplies.
Asia’s trade is facing a new cost increase as high-sulphur fuel oil prices surpass crude oil due to disrupted supplies from the Middle East and Russia, resilient demand, and high freight rates. The Singapore–Rotterdam HSFO swap spread reached a record $95/t on October 7, illustrating a shortage concentrated in the Asian market.
Middle Eastern and Russian shipments to Singapore have significantly decreased, while demand for HSFO has risen due to an expanding fleet of scrubber-equipped ships. High freight rates are making it difficult to arbitrage cheaper Western supplies into Asia.
While some relief is expected towards year-end from seasonal factors and Chinese export allowances, persistent high shipping costs and vulnerable Russian supplies make a return to pre-war pricing difficult. Saudi Aramco has tendered for significant HSFO volumes for November exports, but geopolitical risks remain.