Fuel Oil Shortage Threatens Shipping as War Disrupts Global Supply

A growing shortage of fuel oil, a crucial fuel for ships and some power generators, is threatening to increase operating costs across the global shipping industry as war-related disruptions squeeze refinery output and tanker traffic.

Refiners are increasingly prioritising higher-value products such as diesel, gasoline and jet fuel, leaving less fuel oil available for the marine-fuel market. At the same time, ships taking longer routes to avoid conflict-affected waterways are burning additional bunker fuel, adding further pressure to already tight supplies.

Energy consultancy Energy Aspects forecasts a global fuel-oil deficit of around 218,000 barrels per day in the third quarter, which would represent the first significant projected shortfall since the third quarter of 2025.

The tightening market is particularly important for Asia, where major bunkering centres rely heavily on imported fuel oil.

Global Fuel Oil Supply Tightens

Fuel oil is widely used as bunker fuel for ships and as a feedstock in some refining processes.

The current supply squeeze has been intensified by disruptions affecting refineries and oil flows in Russia and the Middle East. Refiners are responding by directing crude and intermediate products towards fuels offering stronger profit margins.

That has reduced the amount of fuel oil available for direct consumption.

Rystad analyst Valerie Panopio told Reuters that prolonged disruption in the Middle East was expected to keep fuel-oil supply “critically tight” during the third quarter.

The situation is particularly significant because fuel oil markets operate with relatively limited flexibility when supplies are disrupted.

Refiners Prioritise Diesel

Refinery economics are playing a major role in the tightening market.

Diesel, gasoline and aviation fuel have generally offered refiners stronger margins than fuel oil. At the same time, inventories of some transport fuels have fallen sharply.

This is encouraging refiners to maximise production of higher-value fuels rather than maintain fuel-oil output.

Fuel oil can also be processed as feedstock in secondary refining units to produce gasoline and diesel. When refiners use more fuel oil for that purpose, less of the product remains available for the bunker market.

Energy Aspects analyst Royston Huan said extremely low gasoline and diesel inventories were encouraging refiners to increase such secondary processing, adding further pressure to fuel-oil supplies.

Asia Faces Greater Exposure

Asia is particularly exposed because of its dependence on fuel supplies from the Gulf.

Singapore, the world's largest marine-bunkering hub, imports more than half of the nearly one million barrels per day of fuel oil it consumes, according to Kpler data.

Any sustained disruption to Middle Eastern exports can therefore quickly affect Singapore's physical market.

The impact can spread beyond Singapore because the city-state is a major refuelling centre for international shipping. Higher bunker prices there can translate into higher operating costs for vessels travelling between Asia, Europe and other major markets.

Stocks Fall Below Average

Fuel inventories at major trading and bunkering centres have also come under pressure.

Data compiled by Reuters indicate that fuel-oil stocks in Singapore, Amsterdam-Rotterdam-Antwerp and Fujairah are roughly 30 per cent below their three-year seasonal averages.

Lower inventories leave markets more vulnerable to sudden disruptions.

If refinery outages or shipping restrictions persist, traders may have fewer readily available supplies to compensate for lost cargoes.

The resulting competition for available fuel could push bunker prices higher, increasing costs for shipowners and operators.

Longer Routes Raise Demand

The supply squeeze is occurring at the same time as ships are consuming more fuel because of disrupted maritime routes.

Vessels avoiding the Bab el-Mandeb Strait and the Red Sea have been taking longer routes around southern Africa. The additional sailing distance increases both voyage times and fuel consumption.

That creates a difficult combination for the shipping industry: supply is tightening just as individual vessels require more bunker fuel.

The longer routes also affect freight rates, delivery schedules and the availability of ships, potentially creating knock-on effects throughout global supply chains.

Singapore Bunker Prices Surge

The tightening market has already been reflected in marine-fuel prices.

Very low sulphur fuel oil, commonly known as VLSFO, is the main marine fuel used by many modern commercial vessels.

According to ZeroNorth data cited by Reuters, Singapore's VLSFO price had risen about 76 per cent from the start of the Iran war to just under $825 per metric tonne, or approximately $130 per barrel, by September 1.

Such an increase can materially affect voyage economics, particularly for vessels operating on long-distance routes.

Shipping companies may ultimately seek to recover some of the additional cost through higher freight rates.

Dangote Changes Exports

Refinery production decisions are also changing the pattern of global fuel-oil trade.

Nigeria's 650,000-barrel-per-day Dangote refinery has increased exports of diesel, gasoline and jet fuel while reducing fuel-oil exports, according to Kpler data.

The shift reflects the wider economic incentive facing refiners.

When transport-fuel inventories are low and margins are stronger, refiners have an incentive to direct available feedstock towards those products. That reduces the volume of fuel oil available for ships and other consumers.

The development illustrates how refinery optimisation decisions in one region can affect marine-fuel availability in another.

Shipping Costs Face Pressure

For shipowners, the immediate concern is the combination of higher bunker prices and increased fuel consumption.

Fuel is one of the largest operating expenses for many commercial vessels. A sustained rise in bunker costs can therefore significantly increase the cost of transporting crude oil, manufactured goods, food and other commodities.

The impact could be particularly pronounced for vessels travelling around Africa to avoid the Red Sea.

Higher shipping costs can eventually feed into freight rates and, depending on the duration and scale of the disruption, increase the delivered cost of goods.

Market Deficit In Focus

The projected 218,000-barrel-per-day third-quarter deficit highlights the potential scale of the imbalance.

The previous projected shortfall was far smaller, with Energy Aspects estimating a deficit of only about 6,000 barrels per day in the third quarter of 2025.

Whether the current deficit persists will depend heavily on refinery operations, Middle Eastern supply flows, shipping routes and demand from the global fleet.

For now, the fuel-oil market is facing pressure from both sides: refiners are producing less of the product while ships are consuming more.

If those conditions continue, shipping companies and power generators could face sustained increases in fuel costs, adding another layer of pressure to an already disrupted global energy and logistics system.