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Update: Market Chatter: Fuel Oil Supply to Further Tighten in Q3 Amid Tensions

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(Updates with Argus' comments in fifth and sixth paragraphs.)

The supply of fuel oil used in ships and power generation is expected to further tighten in Q3, as refiners prioritize output of gasoline and diesel to maximize profits, while shipments from Russia and the Middle East remain constrained due to geopolitical tensions, Reuters reported Monday, citing analysts.

Fuel oil inventories in major hubs Singapore, Amsterdam-Rotterdam-Antwerp, and Fujairah are currently 30% below three-year seasonal averages, the news agency said, with research firm Energy Aspects projecting the Q3 shortfall to reach 218,000 barrels per day. Rystad Energy also told Reuters the Q3 balance is expected to remain "critically" tight.

Against this backdrop, prices of very-low-sulfur fuel oil in Singapore in early September have risen 76% since the onset of the US-Iran war, according to data cited by Reuters.

Argus, meanwhile, reported on Friday that Kuwaiti state-controlled refiner KPC has offered very-low-sulfur fuel oil after a six-month lull, coinciding with the fading summer season. It also said that the Singapore market may see more arbitrage arrivals from mid-September onwards due to favorable east-west differentials, potentially easing supply tightness.

It projects global fuel oil deficit to narrow by around 101,000 b/d in Q4, after widening by more than 600,000 b/d in Q3, according to a statement shared with.

However, "the market is far from comfortable," Argus said, citing low inventories, limited refining activity in Russia, flow disruption in the Middle East, and strong margins for gasoline and diesel.

(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)

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