Asia turns to Russian fuel in record volumes

Asia is set to import record volumes of Russian fuel oil by the end of March, as continued disruption to Middle Eastern supplies forces buyers across the continent to seek alternative sources and take advantage of a temporary easing of US sanctions against Moscow.

According to Reuters, ship-tracking data indicate imports will exceed 3mn tonnes - equivalent to about 614,500 barrels per day (bpd), marking an all-time high for imports from Russia. The surge follows a muck-publicised US waiver that has allowed limited purchases of Russian fuel, even as the conflict involving Iran has constrained flows from the Gulf.

The shift on the part of Washington reflects mounting supply strain across global energy markets – in Asia most notably India, Japan and China. Fighting in the Middle East has curtailed regular long-standing fuel oil shipments through the Strait of Hormuz and disrupted refinery operations with a number of refineries claiming force majeure.

In the short-term, South-east Asia is expected to absorb the largest share of Russian volumes, with between 1.7mn and 1.9mn tonnes forecast to arrive in hubs such as Singapore and at ports around Malaysia. Much of this supply is likely to be used as bunker fuel for shipping, at least on the part of Singapore.

China is also increasing its purchases from Russia, with imports estimated at 1.2mn to 1.5mn tonnes – primarily for use as a substitute feedstock in refineries.

In knock-on effect, the influx of Russian high-sulphur fuel oil has provided some short-term relief to prices and spot premiums have eased to around $70 per tonne, down around $6 from more than $76 just days ago.

However, according to reports, analysts warn that the broader outlook still remains tight. The US sanctions waiver is limited in duration and only partially offsets the loss of Middle Eastern supply. To this end, continued disruption linked to the conflict with Iran risks exacerbating shortages and sustaining upward pressure on prices.