Ship Fuel Shortage Looms as Refiners Prioritize Diesel Amid Global Disruptions

A significant shortage of fuel oil used for shipping and power generation is expected in the third quarter, as global refiners strained by geopolitical conflicts prioritize the production of more profitable fuels like diesel and gasoline. Consultancy Energy Aspects forecasts a deficit of 218,000 barrels per day (bpd), the first significant shortfall it has projected since 2025.

Refinery Economics Shift Production

The primary driver of the shortage is a strategic shift by refiners to maximize profits from other products. With inventories for fuels like gasoline and diesel at historic lows in key regions, refiners are incentivized to use fuel oil as a feedstock to produce these higher-margin products.

"Record-low gasoline and diesel inventories will incentivise refiners globally to maximise secondary unit runs with more fuel oil feedstock barrels, in turn tightening fuel oil balances," said Royston Huan, an analyst at Energy Aspects. For example, Nigeria’s new Dangote refinery has ramped up diesel and jet fuel exports while its fuel oil shipments have fallen, according to data from Kpler.

Supply Shocks from Global Conflicts

Geopolitical disruptions have severely curtailed fuel oil supply from key exporting regions. Ukrainian drone attacks have impacted Russian refinery output, with the country's fuel oil exports in August falling to a record low of 591,000 bpd, down from an average of over 860,000 bpd in 2025, Kpler data shows.

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In the Middle East, refinery outages and conflict have also slashed output. Fuel oil exports from the region dropped by 45% year-on-year to an average of 447,000 bpd from March to August, according to Kpler. This includes major disruptions at Kuwait's Al-Zour refinery, a top exporter.

Prices Surge as Inventories Fall

The market is already reflecting the tightening supply. The price of very low sulphur fuel oil (VLSFO), the main shipping fuel, has surged 76% in the global bunkering hub of Singapore to nearly $825 per metric ton since the start of the Iran war, according to data from ZeroNorth. This price rise has significantly outpaced the 40% increase in benchmark Brent crude over the same period.

Fuel oil inventories in the major hubs of Singapore, Amsterdam-Rotterdam-Antwerp, and Fujairah are approximately 30% below their three-year seasonal averages, according to data compiled by Reuters. The situation is exacerbated by increased demand from ships taking longer routes to avoid the Red Sea, further straining a critically tight market.