Oil Crisis 2.0? This time, the problem may be fuel oil.

Oil Crisis 2.0? This time, the problem may be fuel oil.

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The global crude oil market is barely staying stable amid the shockwaves from the Iranian war, but a more hidden crisis is surfacing—a fuel oil that powers the world’s container fleet is trading at unprecedented prices, and some key ports face supply risks. According to Bloomberg analysis, if the shipping industry truly “runs out of oil,” the global economy will suffer a severe blow.

Vincent Clerc, CEO of shipping giant AP Moller-Maersk A/S, issued a warning to France's Le Monde this week: “If we don’t take action, we may face the exhaustion of supply points in Asia.” This is a rare public statement in the global shipping industry, showing that industry concerns about the current situation can no longer be ignored. According to Bloomberg’s industry survey, two out of the world’s three largest fueling ports—Singapore and Fujairah in the UAE—are extremely tight on fuel oil supply, and several of the top ten ports are also starting to have problems, while supplies at European and American ports remain normal for now.

In terms of price, fuel oil spot prices in Singapore have risen to $140 per barrel, Fujairah’s transaction price is close to $160, and some grades meeting strict environmental standards reach as high as $175—all new historic highs, far above the peaks of 2022 and 2008. Market liquidity is nearly dried up—traders quote prices over the phone, valid for only a few minutes, showing an extremely tense “now or never” state.

The hidden nature of this crisis is what makes it dangerous. Crude oil prices are fluctuating around $100 per barrel, seemingly manageable on the surface, but this benchmark price no longer reflects the real situation in the refined product market. Fuel oil is transforming from the “bottom-of-the-barrel product” of the oil industry into a core variable threatening global supply chain stability.

Wall Street and major central banks typically focus on the price of West Texas Intermediate (WTI) or Brent crude. This benchmark is widely tracked by bond investors and central bank governors, but in reality, only refiners directly buy crude oil. The real world buys refined products like gasoline, diesel, and fuel oil, so export prices from refineries are the true cost to the real economy.

Normally, crude oil and refined product prices are linked, with the latter just slightly higher to reflect refining costs. But now this traditional relationship is broken. Brent crude quotes at about $100 per barrel, so in theory, fuel oil prices shouldn’t stray too far, but reality is drastically different: Singapore quotes $140, Fujairah is near $160, and some grades go up to $175.

According to Bloomberg data, Singapore fuel oil prices have surpassed the highs of both 2008 and 2022, reaching the highest level on record. Fuel oil is known as the “bottom-of-the-barrel product” in the oil industry, coming from the distillation tower’s lowest fraction, usually cheap and neglected. Now it has become one of the world’s most expensive bulk commodities, reflecting the far-reaching distortion of energy market structures caused by war.

Hormuz Blockade Cuts Off Global Fuel Oil Supply Chain

The root of this crisis lies in the closure of the Strait of Hormuz. This waterway is not only the throat for crude oil exports but also the main channel for fuel oil output from refineries in Saudi Arabia, Kuwait, and the UAE. According to the International Energy Agency, refineries in the Persian Gulf region produce 20% of the world’s internationally traded fuel oil.

The refining structure of Persian Gulf crude oil also worsens the issue. For example, Saudi’s flagship grade, Arab Light crude, yields about 50% “residue” usable to produce fuel oil after distillation, whereas WTI crude yields only 33%. This means that even if Asian refineries switch to alternative crudes from the US or Russia, fuel oil output will drop significantly, and the supply-demand gap will be hard to fill.

The structural differences between the fuel oil market and those of gasoline and diesel make it even more fragile. The Persian Gulf’s share of international trade in gasoline and other products is much lower than for fuel oil, so closure of the strait hits fuel oil much harder than other refined products.

No Cushion Left, Demand Destruction May Be Only Way

Another problem with this crisis is that conventional emergency tools are nearly exhausted. According to Bloomberg, the market has already mobilized its two major defenses against oil shocks: bypassing refineries to allocate resources directly, and tapping strategic oil reserves.

This means, without new policy tools, only higher prices destroying demand—bringing consumption into line with available supply—can stop the crisis from worsening. For the global trade system highly dependent on shipping, this is a costly adjustment.

Singapore and Fujairah hold a crucial position in the global vessel supply system. If these two ports face large-scale outages, container and bulk ships will be forced to stop, causing direct and wide-ranging disruption to the global supply chain. Impacts will ripple into the real economy via surging freight rates and shipment delays.

Industry Racing for Self-Rescue, but Hormuz Is the Key Variable

Currently, the shipping and oil industries are actively responding, transferring fuel oil from Rotterdam, Gibraltar, Long Beach (USA), and Panama to Asia. But transoceanic supply solutions are expensive and logistically delayed, so whether they can fill Asia’s port gaps remains unknown.

According to Bloomberg, how long the Strait of Hormuz remains closed will directly decide the crisis’s direction. The longer the blockade lasts, the greater the risk of ship fuel outages, and the more pressure the global shipping network will face.

For investors, the current situation means that even if crude oil prices stay relatively stable, disturbances from the refined product market—especially fuel oil—may greatly exceed expectations and spread through rising shipping costs, supply chain disruptions, and into broader economic sectors and asset prices. Although fuel oil comes from the bottom of the barrel, it is becoming the top risk in this energy crisis.

Risk Warning and DisclaimerThe market carries risk, and investment should be cautious. This article does not constitute individual investment advice, nor does it consider the special investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their specific circumstances. If investing based on this, responsibility is borne by the reader. ```