Oil Crisis 2.0? This Time, the Problem Might Be Fuel Oil

The global crude oil market remains barely stable amid the Iran conflict’s impact, but a more covert crisis is emerging—fuel oil, which drives the global container fleet, is trading at unprecedented prices, with some key ports facing supply disruptions. According to Bloomberg analysis, if the shipping industry truly “runs out of oil,” the global economy will suffer severe blows.

Shipping giant A.P. Moller-Maersk CEO Vincent Clerc warned this week in Le Monde: “If we don’t take action, we may face depletion of supply points in Asia.” This rare public statement from the shipping industry indicates that industry concerns about the current situation are now unavoidable. Bloomberg’s industry survey shows that fuel oil supplies at two of the world’s three major refueling ports—Singapore and Fujairah in the UAE—are extremely tight, with several other top ten ports also experiencing issues, while supplies at European and American ports remain normal.

In terms of prices, spot fuel oil in Singapore has risen to $140 per barrel, Fujairah’s transaction prices approach $160, and some environmentally strict grades reach as high as $175, all hitting record highs and far exceeding peaks in 2022 and 2008. Market liquidity is nearly exhausted—traders quote prices over the phone with validity only a few minutes, reflecting an extreme “if you don’t buy now, it’s gone” tension.

The covert nature of this crisis is its danger. Crude oil prices are still fluctuating around $100 per barrel on the surface, seemingly manageable, but this benchmark no longer reflects the true state of the refined products market. Fuel oil is evolving from a “bottom-of-the-barrel” product into a core variable threatening global supply chain stability.

Prices Hit Record Highs, Breaking the Link Between Crude and Refined Products

Wall Street and major central banks typically focus on West Texas Intermediate (WTI) or Brent crude oil prices. These benchmarks are widely followed by bond investors and central bank governors, but in reality, only refiners directly buy crude oil. The real-world purchases are for gasoline, diesel, fuel oil, and other refined products, so the prices at refinery outlets are the true costs for the real economy.

Usually, crude and refined product prices stay linked, with the latter slightly higher to reflect refining costs. But this traditional relationship has broken down. Brent crude is around $100 per barrel, so fuel oil prices theoretically shouldn’t be far off—yet in reality: Singapore quotes $140, Fujairah nearly $160, and some grades reach $175.

Bloomberg data shows that Singapore fuel oil prices have surpassed the peaks of 2008 and 2022, reaching record highs. Fuel oil, known as the “bottom-of-the-barrel” product in the oil industry, comes from the lowest part of distillation towers, historically cheap and undervalued. Now, it has become one of the most expensive commodities globally, reflecting profound distortions in the energy market caused by the war.

Hormuz Blockade Cuts Off Global Fuel Oil Supply Chain

The root of this crisis lies in the closure of the Strait of Hormuz. This waterway is not only the bottleneck for crude oil exports but also the main channel for fuel oil exports from refineries in Saudi Arabia, Kuwait, and the UAE. According to the International Energy Agency, the Gulf region’s refineries produce 20% of the world’s international trade in fuel oil.

The refining structure of Gulf crude oil exacerbates the problem. For example, Saudi Arabia’s flagship Arab Light crude yields about 50% “residuals” suitable for fuel oil after distillation, whereas WTI crude yields only 33%. This means that even if Asian refineries switch to alternative crude sources from the U.S. or Russia, fuel oil output will decline significantly, making supply-demand gaps hard to fill.

The structural differences between the fuel oil market and markets for gasoline and diesel also make it more vulnerable. The Gulf’s international trade share of gasoline and other products is much lower than that of fuel oil, so the impact of the Strait’s closure on fuel oil is far greater than on other refined products.

Buffer Space Exhausted, Demand Destruction May Be the Only Solution

Another complication is that conventional emergency tools are nearly exhausted. Bloomberg reports that the market has already used two main defenses against oil shocks: bypassing refineries to directly allocate resources and deploying strategic petroleum reserves.

This means that without new policy interventions, the only way to prevent further deterioration is through higher prices that destroy demand, rebalancing consumption with available supply. For a global trade system heavily reliant on shipping, this adjustment process will be extremely costly.

Singapore and Fujairah are crucial in the global shipping refueling network. If these ports face large-scale supply disruptions, container ships and bulk carriers will be forced to halt operations, causing direct and widespread impacts on global supply chains, with effects transmitted through soaring freight rates and delays, affecting the real economy.

Industry Self-Rescue, but Hormuz Is the Key Variable

Currently, the shipping and oil industries are actively taking measures—transferring fuel oil from ports like Rotterdam, Gibraltar, Long Beach, and Panama to Asia. However, transoceanic supply is costly, with logistical delays, and whether these efforts can fill the gaps at Asian ports remains uncertain.

Bloomberg states that the duration of the Hormuz Strait closure will directly determine the crisis’s trajectory. The longer the blockade, the higher the risk of fuel supply interruptions for ships, and the greater the pressure on the global shipping network.

For investors, the current situation means that even if crude oil prices remain relatively stable, disruptions in the refined products—especially fuel oil—could be far more significant than expected, spreading through higher shipping costs, supply chain disruptions, and broader economic and asset price impacts. Though originating from the bottom of the barrel, fuel oil is becoming one of the most critical top-level risks in this energy crisis.