The global supply of fuel oil has tightened in recent months due to reduced refining capacity in Russia and the Middle East, and a lack of blending components as refiners divert the streams to produce higher-value products such as jet and diesel, Argus said Wednesday.
"Many of the streams that would normally end up in fuel oil are now competing with other sectors for a home. Refiners have increasingly diverted these barrels into upgrading units, leaving less material available for the fuel oil pool," Argus analyst Sarah Raffoul told.
The research firm noted that strong middle distillate cracks have increased the incentive to use fuel oil blending components, such as vacuum gasoil, low-sulfur straight run, and crude grades like Sudan's Dar Blend, as refinery feedstocks. This has reduced fuel oil yields and tightened supply in a market that has already been impacted by geopolitical tensions.
Nonetheless, tailwinds could improve fundamentals, with Argus projecting the global fuel oil deficit will narrow by around 101,000 barrels per day in Q4 from a quarter earlier, after widening by more than 600,000 b/d in Q3.
More blend stocks like vacuum gas oil could come from Europe as refiners ramp up after the spring turnaround period, while more fuel oil supply will likely come from the Middle East as the summer season fades and domestic demand for utility burn tapers.
Some Middle Eastern producers have also restarted shipments despite Hormuz risks, with Kuwait Petroleum reportedly exporting very-low sulfur fuel oil after a six-month lull. In Syria, Argus noted that fuel oil exports reached a record 199,000 b/d in August, while September loadings could exceed 200,000 b/d.
Availability of heavy crude oil and fuel oil from Venezuela is also helping ease supply tightness, according to the research firm.
In the US, heavier crude slates are increasing fuel oil yields, although most refineries are already running at maximum capacities. Heavy crude accounted for 46% of US crude imports in August, up from the 2025 average of 40%.
However, "the market is far from comfortable," Raffoul said, noting that fuel inventories remain low, while refining activity in Russia remains constrained and shipments from the Middle East remain prone to disruption.
"In addition, exceptionally strong gasoline and diesel margins continue to support demand for fuel oil feedstocks. Refiners are prioritizing transport fuel production wherever possible, keeping demand for secondary unit feedstocks elevated," Raffoul said.