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

The global crude oil market is barely maintaining stability under the impact of the Iran war, but a more covert crisis is emerging—the fuel oil that drives the global container fleet is trading at unprecedented prices, with some key ports facing 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, warned this week in an interview with the French newspaper Le Monde: "If we do not take action, we may face a situation where supply points in Asia are depleted." This is a rare public statement from the global shipping industry, indicating that the serious concerns within the industry about the current situation can no longer be ignored. According to Bloomberg's industry survey, fuel oil supply is extremely tight in two of the world's three major bunkering ports—Singapore and Fujairah in the UAE—while several other top ten ports are also beginning to experience problems, although supply at European and American ports remains normal for now.

In terms of pricing, Singapore's fuel oil spot price has risen to $140 per barrel, with Fujairah's transaction price nearing $160, and some oil products that meet strict environmental standards even reaching $175, all setting historical highs, far exceeding the peaks of 2022 and 2008. Market liquidity is also nearing exhaustion—traders quote prices over the phone, with validity lasting only a few minutes, reflecting an extreme state of tension where "if you don't take it now, it will be gone."

The covert nature of this crisis is what makes it dangerous. Crude oil prices are currently fluctuating around $100 per barrel, which appears manageable on the surface, but this benchmark price can no longer reflect the true state of the refined products market. Fuel oil is evolving from being the "bottom product" of the oil industry to a core variable threatening the stability of the global supply chain.

Prices reach historical highs, breaking the linkage between crude oil and refined products

Wall Street and major central banks typically focus on the prices of West Texas Intermediate (WTI) or Brent crude oil. This benchmark is widely tracked by bond investors and central bank governors, but in reality, only refiners directly purchase crude oil. What is actually bought in the real world are refined products such as gasoline, diesel, and fuel oil, so the prices at the refinery's export end represent the true costs of the real economy.

Under normal circumstances, crude oil and refined product prices maintain a linkage, with the latter being slightly higher to reflect refining costs. However, this traditional relationship has now broken down. Brent crude is quoted at around $100 per barrel, and theoretically, fuel oil prices should not deviate too far from this; however, the reality is starkly different: Singapore is quoted at $140, Fujairah is close to $160, and some varieties reach $175.

According to Bloomberg data, Singapore's fuel oil prices have surpassed the peaks of 2008 and 2022, reaching the highest level on record. Fuel oil has long been known as the "bottom product" in the oil industry, coming from the bottom of the distillation tower, historically cheap and overlooked. Now, it has become one of the most expensive commodities globally, reflecting the profound distortions in the energy market structure caused by war.

The blockade of Hormuz, cutting off the 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 United Arab Emirates. According to data from the International Energy Agency, refineries in the Persian Gulf region produce 20% of the total fuel oil traded internationally.

The refining structure of Persian Gulf crude oil itself exacerbates the problem. Taking Saudi Arabia's flagship oil product, Arab Light crude oil, as an example, about 50% of its output is "residuals" that can be made into fuel oil after processing in a distillation tower, while this ratio for WTI crude oil is only 33%. This means that even if Asian refineries turn to purchase alternative crude oil from the United States or even Russia, the output of fuel oil will significantly decrease, making it difficult to fill the supply-demand gap.

The structural differences between the fuel oil market and the gasoline and diesel markets also make it more vulnerable. The share of international trade in gasoline and other oil products in the Persian Gulf is far lower than that of fuel oil, so the impact of the strait's blockade on fuel oil far exceeds that of other refined products.

Buffer Space Exhausted, Demand Destruction May Be the Only Way Out

Another tricky aspect of this crisis is that conventional emergency tools are almost exhausted. According to Bloomberg, the market has already utilized the two main defenses against oil shocks: bypassing refineries to directly allocate resources and tapping into strategic petroleum reserves.

This means that without new policy tools intervening, the only way to prevent the crisis from worsening is to rely on higher prices to destroy demand, thereby realigning consumption with available supply. For the globally trade system that heavily relies on shipping, this is an extremely costly adjustment process.

Singapore and Fujairah play a crucial role in the global ship supply system. If these two ports experience large-scale supply disruptions, container ships and bulk carriers will be forced to suspend operations, directly and widely impacting the global supply chain, with effects transmitted to the real economy through soaring freight rates and cargo delays.

Industry Self-Rescue Race, but Hormuz is the Key Variable

Currently, the shipping and oil industries are actively taking countermeasures, transporting fuel oil from ports such as Rotterdam, Gibraltar, Long Beach in the United States, and Panama to Asia. However, the cost of transoceanic supply solutions is high, and there are significant logistical delays, making it uncertain whether they can fill the gaps in Asian ports.

According to Bloomberg, the duration of the closure of the Strait of Hormuz will directly determine the direction of the crisis. The longer the blockade lasts, the higher the risk of fuel interruption for ships, and the greater the pressure on the global shipping network.

For investors, the current situation means that even if crude oil prices remain relatively stable, the disturbances in the refined products market—especially the fuel oil market—could far exceed expectations and spread to broader economic sectors and asset prices through rising shipping costs and supply chain disruptions. Although fuel oil comes from the bottom of the barrel, it is becoming the most significant top-level risk in this energy crisis