Supply pressures will continue to elevate European fuel oil prices in 2024, with relief coming from hitherto less significant exporters a possibility, while bunkering hubs outside Europe might grow in prominence.
EU states pivoted away from Russia for their high-sulphur fuel oil (HSFO) imports after sanctions started in 2023. Vortexa data show that after 5 February, half of HSFO departures signalling for European ports — excluding those in Turkey — came from the UAE, Saudi Arabia and Iraq. In contrast, across all of 2022, Russia accounted for nearly 80pc of seaborne HSFO deliveries.
Relying on these middle Eastern countries for HSFO and crude oil supplies in 2024 will probably tighten supplies over the summer, as was the case in 2023, when HSFO discounts to Ice Brent crude futures flipped to a premium for the first time in 30 years.
Further establishing flows between newer exporters will be important to European buyers and refiners in 2024. Venezuela, whose oil industry was sanctioned by the US until October, has been touted as a potential supplier of sour crude and fuel oil to the west in the coming months, which could provide some relief to HSFO undersupply in northwest Europe. Likewise, Venezuelan volumes going to the Mediterranean may incentivise transportation of the product within the region, where HSFO paucity has at times disincentivised refiners from paying rising freight costs to move smaller than desired cargoes.
HSFO demand from non-European countries such as China may also draw the attention of large exporters of sour crude and feedstocks. China recently released a new set of import quotas for foreign HSFO after independent refiners reached their crude import limit. Demand for imported fuel oil from the Chinese refining sector has approached historic highs this year. But some refinery sources in China reckon the government's tax rebate policy will be adjusted to reduce these flows.
Eastern promises
The market is predicting lower demand for marine fuels, largely consisting of very-low sulphur fuel oil (VLSFO), in Europe across 2024, partly because of the marine sector preparing for its greenhouse gas emissions to be incorporated in the EU's emissions trading scheme (ETS).
From January, the ETS will cover CO2 emitted from all large vessels entering EU ports, with shipping companies in 2025 having to surrender emissions allowances for 40pc of those emissions. In the short run this will push vessels to bunker outside EU waters, as the transition to green marine fuels gets underway.
Bunker fuel demand has generally tapered off towards the end of 2023, leading many suppliers to shift large volumes to Singapore, the world's main bunkering hub. Singaporean demand for bunker fuels generally rallied in the last quarter.
VLSFO stocks have also been moved east out of Europe because of the tightness of supply in Singapore in recent months, a knock-on effect of technical disruption at refineries east of Suez. Producers and suppliers in Europe are keeping a weather eye on the state-owned 615,000 b/d al-Zour refinery in Kuwait, a potentially huge supplier of VLSFO in the east next year. Al-Zour was hit by many technical disruptions in the latter part of 2023, at one point having to draw operations to a near complete halt. With a consequently reduced output of VLSFO, producers in Europe have been able to capture margins by selling to Singaporean buyers. In 2024, whether KPC can end problems at al-Zour will play a big part in determining whether the 0.5pc sulphur product continues to flow east, and whether pressure on stocks in Europe will rise or fall.
