Why the Global Fuel-Oil Market Faces a 218,000-bpd Deficit in Q3 2026

The projected fuel-oil shortage is less about whether crude oil exists than whether refiners can process it and move the resulting products to market. Conflict around the Strait of Hormuz has constrained Gulf refinery operations and tanker traffic, while Ukrainian attacks have reduced Russian refining output. At the same time, refiners facing tight middle-distillate markets are directing more of the available barrel toward diesel, gasoline and jet fuel rather than fuel oil. 13

The supply shock: refineries and export routes

Energy Aspects expects a global fuel-oil deficit of 218,000 barrels per day in Q3 2026, its first projected shortfall since Q3 2025. 3

The Gulf disruption matters disproportionately for refined products. Pipelines can allow some crude exports to bypass the Strait of Hormuz, but there is no comparable, large-scale workaround for most refined-fuel exports. That leaves product supply more exposed when tanker movements and refinery operations are disrupted. 1

The wider scale of the disruption is substantial: analysts estimated Gulf oil-flow disruption at roughly 5 million to 7 million bpd in late August, and the conflicts in the Gulf and Ukraine had cut global refining capacity by about a tenth. 4

Russia is the other major pressure point. Ukrainian strikes have impaired refinery operations, reducing fuel production and contributing to domestic shortages and export restrictions. 49 Russian fuel-oil exports fell to a record-low 591,000 bpd in August, compared with an average above 860,000 bpd in 2025, according to the reported market data. 3

Middle Eastern fuel-oil exports also weakened sharply. They averaged 447,000 bpd from March through August, down 45% year on year; Kuwait’s Al-Zour refinery, previously an important supplier, exported only one 26,000-bpd cargo after March, versus about 191,000 bpd in January and February. 3

Why fuel oil loses out at constrained refineries

Fuel oil is a residual product, but it can also be a feedstock for secondary refining units. With stocks of diesel, gasoline and jet fuel tight, refiners have a commercial reason to use scarce fuel-oil feedstocks to produce those higher-value transport fuels instead of selling them into the fuel-oil market. 3

That choice tightens supply for two major fuel-oil consumers: ships and power generators. It also explains why a crude market that has avoided an equivalent price spike can still coexist with an acute shortage of refined products. 13

Marine-fuel prices and inventories are signaling stress

Singapore’s very-low-sulphur fuel oil (VLSFO), the key compliant marine fuel, had risen 76% from the start of the Iran war to just under $825 per metric ton—about $130 per barrel—as of September 1. That exceeded Brent crude’s 40% gain over the same period. 3

Physical buffers are also thin. Fuel-oil inventories in Singapore, Amsterdam-Rotterdam-Antwerp and Fujairah were roughly 30% below their respective three-year seasonal averages. 3

Longer voyages compound the shortage. Ships avoiding the Bab el-Mandeb or Red Sea because of Houthi threats must travel farther, increasing bunker consumption even if underlying cargo demand is soft. 3

What China can—and cannot—offset

China’s reduced refinery capacity and fuel exports have removed a potential balancing supply source for the regional market. 13 This matters because additional Chinese barrels could otherwise help replace disrupted Gulf and Russian supply in Asia.

The supplied evidence does not provide a specific price, spread, inventory level or confirmed direction for China’s 180CST fuel-oil market. Any precise assessment of that grade’s market response would therefore go beyond the available evidence.

Why Singapore faces the greatest pressure

Asia is highly exposed to disrupted Gulf supply, and the region’s refined-product imports fell to their lowest level since the conflict began in August. 23 The region must also compete for replacement cargoes at a time when Russian supply is constrained and Chinese exports are less able to fill the gap.

Singapore is particularly vulnerable because it is the world’s largest bunker hub. It consumes nearly 1 million bpd of bunker fuel and imports more than half of that demand. 3

Softer shipping activity or weaker freight rates could curb fuel consumption at the margin. But they do not restore lost refinery output, reopen disrupted export channels, rebuild low inventories or eliminate the extra bunker burn created by longer routes. The central risk for Singapore is a physical supply squeeze in compliant marine fuel, with higher bunker costs potentially feeding into shipping costs depending on cargo demand and vessel capacity. 13