Kieran Gallagher, head of Asian operations at Vitol, notes that producers are grappling with heightened freight costs and risk premiums to move cargoes through the Strait of Hormuz. This geopolitical friction has created a substantial supply vacuum, forcing Asian refiners to pivot toward fuel oil as a feedstock to compensate for reduced Saudi crude exports. These refiners secured approximately 1 million tons for November delivery, intensifying competition for a shrinking resource.

Simultaneously, Ukrainian drone attacks on Russian refineries have removed another 1 million tons of fuel oil from the market each month. While replacing fuel oil with crude remains the logical path for refiners, shipping risks in the Middle East continue to obstruct this transition. Consequently, spot market premiums for fuel oil have skyrocketed to nearly $50 per ton, a sharp escalation from the $5.10 recorded in late February, according to LSEG data.