Gallagher Estimates 1.8 Million Tons in Monthly HSFO Supply Losses

Kieran Gallagher, Vitol’s head of Asia, estimated that disruptions are cutting a combined 1.8 million tons of high-sulfur fuel oil a month, tightening supply as Asian refiners booked cargoes for November.

The figures cover separate sources of pressure. Gallagher estimated Persian Gulf flows, including Iranian supply, were down 800,000 tons per month, while Ukrainian attacks on Russian refineries had removed about 1 million tons per month. Together, the estimates put monthly losses at 1.8 million tons across the two regions.

High-sulfur fuel oil (HSFO) serves ship bunkers and some refinery upgrading units. In the latter use, it acts as feedstock, or material processed by a refinery. Ships and refiners therefore compete for the same fuel-oil supply as disruptions reduce available volumes.

After Asian refiners booked about 1 million tons of HSFO for November delivery as feedstock, refinery demand added to competition in the bunker market, where ships buy fuel. The bookings came amid disruptions to Saudi crude exports through the Red Sea. The November booking total is distinct from Gallagher’s monthly supply-loss estimates.

Middle East HSFO exports averaged 3.7 million tons per month before the conflict. That figure describes the region’s broader trade, while Gallagher’s 800,000-ton estimate covers Persian Gulf flows, including Iranian supply.

More crude moving through the Strait of Hormuz may not quickly ease the HSFO squeeze. Refineries are maximizing throughput and prioritizing products such as diesel, so higher crude flows do not automatically produce more fuel oil. The mix of products refineries prioritize also affects how much HSFO is available.

Gallagher said restoring medium and heavy crude supplies could reduce refiners’ reliance on fuel oil as feedstock and leave more for bunker buyers. “The key lies in replacing fuel oil with crude as a refinery feedstock,” he said.

Singapore’s spot premium for 380-centistoke HSFO neared $50 per ton during the week of Oct. 16, compared with $5.10 per ton on Feb. 27. The higher premium reflects the tight market for the fuel.

The pressure adds to other fuel-market constraints, including Chinese refiners suspending oil-product exports beyond Hong Kong and Macau and PetroChina canceling several October shipments.