Will the fuel oil market’s volatile and relatively strong pattern continue?

LU Fuel Oil: Geopolitical disruptions persist, sustaining the volatile and relatively strong pattern. Low-sulfur fuel oil is jointly constrained by crude oil costs, refinery production scheduling, and actual demand from the marine bunkering sector. Repeated geopolitical developments continue to disturb valuation expectations, placing the contract in a window of contention between near-term spot tightness and medium-term supply recovery—resulting overall in a high-volatility, range-bound trading pattern. On the news front, the Middle East situation remains the core disruptive variable for the energy complex. Navigational risks in the Strait of Hormuz persist, with the standoff repeatedly shifting; geopolitical risk premiums oscillate in the crude oil market and transmit downward to low-sulfur fuel oil valuations. However, market enthusiasm for rapid escalation of conflict has cooled, and sustained rallies driven solely by geopolitical headlines have diminished. On the overseas supply side, Kuwait’s large-scale refinery has plans for resumption of operations, while Nigerian and Brazilian export volumes retain flexibility—raising the possibility of incremental low-sulfur blending components entering the Asian market later, thereby capping upside potential on the futures market. Russia continues its refined-product export controls, indirectly restricting global diesel component flows; diesel cracking margins remain relatively elevated, continuously diverting components away from low-sulfur fuel oil. Domestically, refineries prioritize production based on profitability, giving gasoline and diesel higher priority than low-sulfur fuel oil; bonded low-sulfur output is unlikely to surge significantly. Export quotas are being steadily consumed, and without new quota allocations, the scope for increasing deliverable domestic supply remains limited. Overseas refined-product cracking margins have retreated from earlier highs, and markets are pricing in weakening demand post-peak season—indirectly constraining the upside potential for low-sulfur fuel oil. From a fundamentals perspective, as a downstream product of crude oil, low-sulfur fuel oil’s valuation is anchored to international crude prices; crude’s range-bound volatility thus provides LU with cost-based floor support. As Asia’s marine bunkering pricing hub, Singapore saw low-sulfur fuel oil spot delivery lead times initially extend to 9–16 days; recently, arriving vessel cargoes have improved month-on-month, easing the prior peak level of spot tightness on the margin. Cracking spreads serve as the key indicator for observing component diversion. Earlier, low-sulfur cracking spreads stabilized above USD 15/bbl, incentivizing refiners to allocate more components toward diesel and compressing low-sulfur fuel oil output. Currently, spreads have retreated to the USD 11–13/bbl range, alleviating pressure from component diversion.

October 8 Hot Topic Tracking: Energy & Chemicals Rally Again—Fuel Oil Breaches 5000 RMB/Ton Threshold

Date: October 8, 2026 Market Performance On the first trading day after the National Day holiday, the entire energy & chemicals sector rallied collectively. Among them, the FU2611 contract surged 16% intraday, breaking above the 5000 RMB/ton threshold. The primary drivers were the upward movement in offshore crude oil prices during the holiday—lifting cost benchmarks—and tight Singaporean fuel oil spot supply-demand conditions, compounded by Middle Eastern geopolitical tensions that heightened shipping and supply risks. This triggered synchronized gains across domestic and offshore markets. Additionally, markets have renewed pricing-in of escalating U.S.–Iran conflict expectations: recent frequent tanker attacks near the Strait of Hormuz have intensified concerns over crude supply disruption, while Tropical Storm activity in the U.S. Gulf of Mexico may sustain oil prices at elevated levels in the near term. Singapore & Supply During the holiday period, Singaporean fuel oil prices tracked international crude oil upward, with price centers steadily rising—reflecting a structurally tight, balanced Asian fuel oil market. On the supply side, persistently high global freight rates continue to suppress European arbitrage cargoes flowing into Asia; European supply arrivals in Singapore are expected to decline in October versus September, sustaining the trend of inventory drawdowns. High-sulfur fuel oil faces pronounced supply pressure: ongoing Middle Eastern geopolitical tensions continue to hinder high-sulfur exports, while Russian supply inflows remain consistently low—further widening the high-sulfur market’s supply deficit.

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