Russian seaborne fuel oil exports have slowed to a four-month low in May, a result of heavy refinery capacity outages due to planned maintenance and drone attacks. In particular, export volumes from key fuel oil export ports – Tuapse, St Petersburg and Taman – have declined sharply over the past three weeks, with no cargoes seen loaded from these ports so far in June. 

Using the 4-week moving average seasonality chart spanning from 2016-2023, a clear downward trend in fuel oil exports can be seen in the first half of the year, before picking up from July onwards. Russian refineries typically maximize light and middle distillates yields to produce more transportation fuels in the first half of the year to cater for domestic demand during the driving and holiday season. The decline in fuel oil exports is usually most pronounced during the May-July period, after which exports are expected to pick up in the third quarter, following the 2016-2023 seasonal trend.

Middle East fuel oil import demand soars

In the Middle East, fuel oil imports in the United Arab Emirates and Saudi Arabia in May have reached the highest level we have seen based on data available from 2016 onwards. These countries usually import higher volumes of high sulphur fuel oil for power generation during the summer season. Saudi Arabia recently started importing fuel oil from Russia after five months of hiatus, further reducing fuel oil supplies for other markets.

New refineries supplies fuel oil to key markets

The opening of new refineries – Nigeria’s Dangote and Kuwait’s Al Zour – has brought more fuel oil to its neighboring markets. Between January and May, five Suezmax VLSFO cargoes have been loaded from Al Zour to Singapore and Fujairah each, catering to bunkering demand. Meanwhile, Dangote refinery has exported over 70kbd of low sulphur straight run fuel, mostly towards the Atlantic Basin over the last three months. The refinery loaded its first fuel oil cargo to Southeast Asia in May despite the long voyage across the Arabian sea.

Tight VLSFO-HSFO spread to persist in the third quarter

The seasonal uptick in Middle East power generation demand, combined with stronger bunker demand arising for vessels transiting through the Cape of Good Hope, has lifted HSFO cracks more than VLSFO in recent weeks, leading to the narrowing of the VLSFO-HSFO spread in the East of Suez. The spread has tightened the most in Singapore and is expected to last through Q3.