Bunker Fuel Shortage Hits Singapore as War-Hit Refiners Favour Diesel

Global supply of the fuel oil burned by merchant ships and power plants is tightening sharply.

The squeeze comes from choices made inside refineries rather than from a collapse in crude availability. Wars have damaged processing plants in Russia and the Middle East and have restricted tanker movements, while China has trimmed refining runs and product exports to protect its own stocks. With gasoline, diesel and jet fuel earning unusually wide margins, refiners are steering barrels toward those products. Many plants also push fuel oil into secondary units to convert it into higher value fuels, which drains the bunker pool a second time. Nigeria's 650,000 barrel per day Dangote refinery shows the pattern clearly, having raised diesel, gasoline and jet fuel exports while its fuel oil shipments fell.

Prices already carry the strain. Very low sulphur fuel oil, the main grade sold to ships, was assessed just under 825 dollars a metric ton in Singapore on 1 September 2026, close to 130 dollars a barrel and 76 percent above the level recorded when the Iran war began. Brent crude gained 40 percent over the same period, so the extra cost carried by shipowners has run far ahead of the move in raw crude. Inventories point the same way, with stocks in the three main hubs of Singapore, Amsterdam-Rotterdam-Antwerp and Fujairah sitting roughly 30 percent below their three year seasonal averages.

Asia carries most of the burden because it leans on Gulf cargoes that the conflict has cut off. Singapore, the largest bunker port in the world, imports more than half of its demand of close to 1 million barrels per day. Local refining covers only part of the requirement. The Bukom complex south west of the main island, operated by Aster Chemicals and Energy since it took over the site from Shell in April 2025, processes around 300,000 barrels per day after an upgrade programme and lists marine heavy fuel oil among its products, but a hub of this size cannot run on domestic output alone.

The supply losses behind the deficit are concentrated in two regions. Russian fuel oil exports fell to a record low of 591,000 barrels per day in August, against an average above 860,000 barrels per day in 2025, after repeated Ukrainian drone attacks on refineries. Middle East fuel oil exports averaged 447,000 barrels per day between March and August, a drop of 45 percent year on year.

Kuwait offers the sharpest illustration of how fast the picture changed. The Al-Zour refinery, rated at 615,000 barrels per day and run by Kuwait Integrated Petroleum Industries Company, set a record in January with more than 205,000 barrels per day of very low sulphur fuel oil exports, most of it heading to Southeast Asia, after recovering from a fire that had cut output late in 2025. Since March the plant has shipped a single cargo of 26,000 barrels per day, against about 191,000 barrels per day in January and February. A power failure on 18 July 2026 forced further units offline, and the operator targeted a restart of two crude units by 10 August.

Demand is strong. The Strait of Hormuz has been effectively shut to routine commercial traffic since 28 February 2026, with daily transits running in the range of seven to ten vessels against a pre-crisis baseline near 85 to 130. Ships that avoid the Bab el-Mandeb strait and the Red Sea because of attacks sail far longer routes around southern Africa, which lifts fuel burn per voyage and adds to bunker demand exactly when cargoes are scarce.

Fuel oil now sits alongside gasoline, diesel and jet fuel among the refined products that cannot keep pace with consumption. Gasoline volumes held independently in the Amsterdam-Rotterdam-Antwerp hub reached their lowest level in almost five years on 27 August, and distillate inventories on the United States East Coast hit a record low in the week to 28 August. United States diesel prices set records on 4 September as renewed hostilities involving Iran and further strikes on Russian refineries deepened the disruption.

The consequences reach beyond the bunker market. Higher fuel bills feed into freight rates, so importers and exporters that never buy a ton of fuel oil still pay part of the cost. Power producers that burn fuel oil, common across South Asia, the Middle East and parts of Latin America, compete for the same barrels and face the same premium. Shipowners with scrubbers can switch toward high sulphur fuel oil, but that grade is tight as well, and the price gap between the two has narrowed, which weakens the usual arbitrage.

Several factors will decide how the fourth quarter looks. A durable reopening of Hormuz would release stranded Gulf barrels, although analysts warn that the global shortage of refining capacity could keep product prices elevated into 2027 even in that case. A full restart at Al-Zour would return a major source of low sulphur marine fuel to Asian buyers. A pause in strikes on Russian refineries would restore part of the 270,000 barrels per day of export capacity lost since 2025. None of those conditions is in place as of 7 September 2026, so charterers and bunker buyers should plan for continued tightness, wider price spreads between hubs and longer lead times on stems in Singapore, Fujairah and Rotterdam.