Middle East supply shock ripples into shipping fuel markets
Fuel oil traders across Asia are scrambling for replacement cargoes after the conflict involving Iran sharply reduced shipments from the Middle East through the Strait of Hormuz. The squeeze is landing most directly in the bunker market, where fuel oil is blended and sold to power ocean-going vessels, and it is pushing refuelling costs higher at key ports led by Singapore.
The Strait of Hormuz is a critical chokepoint for refined products moving from Gulf suppliers into Asia. Traders estimate that fuel oil exports transiting the strait and bound for Asian buyers typically average about 1.2 million metric tons per month, or roughly 246,000 barrels per day, with close to 70% of those volumes ending up in Southeast Asia. In total, fuel oil exports via the strait usually amount to around 3.7 million tons per month.
That flow has been disrupted by a sharp reduction in tanker movements. Vessel activity analysis indicates transits are now roughly 90% lower than a week earlier, tightening the high-sulphur fuel complex that is heavily dependent on Gulf supply. Traders say the market has responded quickly because even partial disruption at a single route can compress availability and amplify price swings in the bunker chain.
Singapore prices surge as traders chase scarce high-sulphur barrels
The immediate price signal has been strongest in high-sulphur bunker fuel delivered into Singapore, the world’s largest ship refuelling hub. Since the conflict began, delivered high-sulphur bunker prices there have climbed by more than 40%. Delivered low-sulphur fuel oil has also risen sharply, up more than 30%, although traders describe that segment as slightly better cushioned because some supply continues to arrive from outside the Gulf.
The rally is being driven by expectations of a growing shortage, particularly for high-sulphur fuel oil that typically originates from Middle Eastern producers. Traders say many buyers are now trying to secure barrels for the second half of March, but the economics of moving replacement cargoes into Asia have deteriorated. Tanker freight rates have surged, and market participants describe arbitrage routes to Singapore as effectively closed for many barrels that would normally be competitive.
Even where supply exists, replenishment costs are expected to rise because the shortage is not limited to one grade. In the low-sulphur market, some supply still comes from countries such as Brazil and Nigeria, but losses from the Gulf reduce flexibility across the system. Traders also pointed to disrupted flows from Kuwait’s al-Zour refinery, which has removed another potential source of low-sulphur barrels from the regional balance.
The knock-on effect for shipping is straightforward. Higher bunker costs raise operating expenses for vessel owners. Those costs are often passed through in freight and surcharges, which can lift transport costs for companies moving raw materials, intermediate goods and finished products across global supply chains.
Western alternatives face freight limits and sanction hurdles
With Middle Eastern volumes constrained, traders are looking to the West for replacement cargoes. Potential sources cited include the United States and Mexico, though market participants say available volumes are limited relative to the gap created by the disruption. Venezuela is also discussed as an option, but traders note those cargoes have largely remained in western markets so far this year.
Russia is another possible supplier, but barrels from Russia remain sensitive for parts of the buyer base due to sanctions linked to the war in Ukraine. Iranian fuel oil is also under long-standing sanctions, even though China has continued to purchase it. In the current conflict, however, those Iranian shipments have also halted, removing a channel that had helped balance regional supply.
Analysts have also flagged a potential secondary tightening mechanism. If Iranian high-sulphur supply remains constrained, Chinese independent asphalt producers could pull more straight-run fuel oil from Russia. That would reduce the availability of Russian barrels that might otherwise flow toward the Singapore Strait, tightening the regional system even if demand remains steady.
Some buyers are turning toward Asian refiners, but traders expect those volumes to shrink as refiners curb runs amid a crude supply shortage connected to the same regional disruption. That dynamic increases the risk that a short-term logistics shock evolves into a broader availability problem for bunker blending hubs.
Inventories offer a buffer, but traders expect sharp draws
For now, the market is being supported by inventories in Singapore, including both onshore stockpiles and volumes held on ships. Traders say those reserves can soften immediate shortages, but they are not viewed as a durable solution if disrupted transits persist. The expectation among market participants is that stockpiles will draw sharply in the coming weeks as deliveries lag demand for refuelling and trading activity continues.
That outlook suggests bunker volatility is likely to remain elevated, especially for high-sulphur products that rely heavily on Gulf-origin barrels. With freight costs high, alternative supply constrained and sanctions limiting flexibility, traders say pricing could stay under upward pressure until shipping patterns normalize through Hormuz or new trade routes become viable at scale.
