Fuel oil premiums and refining margins in Asia will be capped by abundant supply in early 2025, but mandates for cleaner fuels for shipping in Europe and potential changes in Russian and Iranian oil flows under the future Trump administration could shake up the markets.
Here are the key factors to watch in the fuel oil and bunker markets in 2025, according to traders and analysts:
TRUMP’S POLICIES ON RUSSIAN AND IRANIAN OIL
Traders are watching US President-elect Donald Trump’s decisions on sanctions on Russian oil after he promised to end the war in Ukraine.
Russian fuel oil exports have been diverted to Asia and the Middle East since Western countries imposed sanctions and price caps on Russian refined products.
If sanctions are eased, traders expect some Russian fuel oil to remain in Europe with a reduction in exports to the East, which could tighten supplies in Asia.
Trump is also expected to strengthen sanctions on Iranian oil and the shadow fleet, which could reduce supplies to Chinese refiners of Iranian crude and straight-run fuel oil.
EXPORTS TO THE MIDDLE EAST
Shipments from Kuwait’s Al Zour refinery, a major exporter of ultra-low sulfur fuel oil (VLSFO), could remain in the Middle East, limiting exports to Asia in 2025, sources say industrial.
“We expect LSFO exports from Al Zour to Fujairah to remain high next year, mainly due to year-on-year growth in UAE (United Arab Emirates) bunker fuel demand.” , said Palash Jain, Middle East oil market consultant for FGE.
He added that the UAE’s domestic production is limited due to the current difficulties at the Montfort refinery.
Meanwhile, Iraq’s fuel oil exports, which hit historic highs in 2024, could climb further as the country is expected to receive natural gas from Turkmenistan from the second quarter to replace oil in Iraqi power plants , said Jain of FGE.
MARITIME FUEL TRANSPORT MANDATES
Regulations aimed at reducing ship emissions in the European Union and the Mediterranean Sea are expected to change marine fuel demand in Europe and Asia in 2025, industry sources say.
The FuelEU Maritime Regulation, which aims to reduce the greenhouse gas intensity of marine fuels by 2% from January, is expected to boost demand for organic-blended marine fuels.
Demand for marine biofuels in major bunkering hubs is expected to increase, with shipping companies such as CMA CGM looking to increase supply.
Furthermore, the Mediterranean Sea will become an Emission Control Area (ECA) for sulfur oxides from May 2025, in accordance with International Maritime Organization regulations.
Ships operating in the region will be required to use ultra-low sulfur fuel oil (ULSFO), with a maximum sulfur content of 0.1%, with the exception of ships using lower carbon fuels.
“The upcoming Mediterranean ECA will likely tighten ULSFO supplies in the region and free up VLSFO supplies for the East,” said Xavier Tang, an analyst at Vortexa.
STRONG DEMAND FOR HSFO BUNKER FUEL
High sulfur fuel oil (HSFO) in Singapore, which hit multi-year highs this year, could see strong demand through 2025, traders say, as more ships are equipped purifiers designed to eliminate air pollutants.
Singapore’s hi-5 spread, which reflects the price premium of VLSFO over HSFO 380-cst, has narrowed to less than $100 per metric ton in recent sessions, from more than $140 at the start of the year 2024. It is expected to remain narrow at the start of 2025, according to analysts.
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