Global high sulphur fuel oil (HSFO) cracks have recently strengthened, with Asia’s HSFO cracks being the most prominent. Asian HSFO cracks reached an eight-month high at -$0.3/bl on 11-February (Argus Media). The movement close to parity was influenced by the threat of potential shortages of HSFO from disruptions due to Office of Foreign Assets Control (OFAC) sanctions placed on Russian and Iranian tankers. However, OFAC sanctions are unlikely to significantly lower Russian residual fuel oil exports as western operators will likely be able to enter the Russian dirty product trade, given that prices trade under the price cap. (Read more from our Russia residual fuel oil blog).

Russia has directed more residual fuel oil to Asia recently at the expense of the Middle East as Middle East domestic demand fell due to lower power generation requirements over winter, freeing up supplies for Southeast Asia and India West Coast. As a result, Middle East has also ramped up HSFO exports to Asia for the fourth consecutive month due to improved arbitrage economics towards Asia compared to Northwest Europe. The seasonal changes in destinations led to longer voyages to Asia. This phenomenon has led to a build-up in Russian residual fuel oil on water, which has accumulated by 11% month-over-month in January to over 30mb, reaching an 11-month high.