The Asian low-sulfur fuel oil market is expected to face challenges in 2025 due to oversupply and increased competition from scrubber-fitted ships, reports S&P Global.
Increased Supply
Increased supplies of finished products, particularly low sulfur straight run (LSSR) fuel oil and crude blends, from the Middle East and West Africa are expected to significantly boost LSFO inventories in Asia. This influx, combined with regional supplies and arbitrage flows from Europe, will likely lead to a moderate inventory build-up throughout 2025.
A Singapore-based trader anticipates lower LSFO refining margins and a weaker market structure due to this increased supply. They believe that a significant inventory buildup is inevitable.
The arrival of significant volumes of LSFO from Kuwait’s Al-Zour refinery has already disrupted traditional flows from European markets. This has been further compounded by incremental LSSR supplies from Nigeria’s new Dangote refinery and recent shipments of Meleck crude from Niger. However, sources believe that the impact of Meleck crude on the market will be limited. “We are expecting higher supplies to weigh on the LSFO market amid lackluster demand growth … With the threat of tariffs, status quo of the Red Sea disruption, adoption of scrubbers and use of alternative fuels, LSFO demand growth will be pressured,” Kendrick Wee, research and analysis director at Commodity Insights, said.
“More supplies are likely coming out of Kuwait into the market, although most of the increases would have already been seen in 2024. These may not directly come to Asia, but they will still indirectly help ease the LSFO balance. Additionally, we are expecting the resumption of heavy sweet crude exports from South Sudan to add more supplies,” Wee added.
Bunker Sales
In 2024, the proportion of high sulfur fuel oil (HSFO) bunker sales increased significantly, while low sulfur fuel oil (LSFO) sales declined. This trend was driven by the growing number of scrubber-equipped ships entering the market, which allows them to utilize the cheaper HSFO.
Traders anticipate this trend to continue, albeit at a slower pace, in 2025. While some new scrubber-fitted ships are expected to enter the market, the economic viability of installing new scrubbers is currently limited.
Data from the Maritime and Port Authority of Singapore supports this trend. From January to November 2024, HSFO accounted for an average of 36.6% of bunker sales, a notable increase from 32.2% in 2023. Conversely, the proportion of LSFO sales declined from 60.3% to 55.5% during the same period. While the growth in HSFO sales is evident, market sources suggest that this trend is beginning to stabilize.
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Source: S&P Global
