Asia Fuel Oil Prices Drop Amid War Concerns

Asian fuel oil benchmark prices fell sharply this week as traders priced in higher Middle Eastern crude and fuel supplies. The shift in market sentiment was influenced by the Democrats' capture of the US Congress, which eased worries about the potential escalation of the US-Israeli war with Iran.

The Dubai-basis crack for 380-cst high-sulphur fuel oil (HSFO) dropped to a discount of $2.29 per barrel, compared to a premium of $5.34 at the start of the week. This marked the lowest crack level since mid-September, continuing a downward trend.

Regional fuel oil supply improved as higher exports from the UAE's Fujairah port helped to cap prices. Emril Jamil, a senior oil research manager at Kpler, noted that the market was reacting to expectations that a peace deal could lead to more oil outflows from the Middle East, which would weigh on prices.

Cracks for 0.5% very low-sulphur fuel oil (VLSFO) also weakened, with spot premiums for both Singapore HSFO and VLSFO declining. Brent crude futures reached their lowest level in over two months on Wednesday, following the Republican Party's loss of control of Congress in the midterm elections.

Despite the recent pullback in prices, traders anticipate some market support due to elevated freight rates that restrict cargo flows from Europe to Asia. Fuel oil arrivals in Asia reached a seven-month high in October, but traders expect November arrivals to decrease.

Freight costs remain high, with east-west fuel oil price spreads reaching record premiums in late October. Although freight rates have eased from their peak in early October, current costs to charter oil tankers from Europe to Asia are still elevated, according to LSEG data.