The Asian high sulfur fuel oil market will likely find some tailwinds in 2025, as a continued rise in scrubber-installed ships bolster healthy bunker consumption amid limited non-sanctioned supplies, but weak utility demand due to cheaper and cleaner alternative fuels and a persistent inflow of Russian supplies into the region will partially impact market fundamentals.
While the global scrubber-equipped fleet is still expected to grow in the coming year, most market sources believe the accelerated uptake seen in recent years has gradually started to reach a plateau, which will eventually taper the increasing proportion of HSFO sales seen in the downstream bunker market in 2024.
“HSFO demand will be supported by the increased use of scrubbers, but weighed by threat of tariff and fuel efficiency improvement. Consequently, the increase will be rather muted,” said Kendrick Wee, Research and Analysis Director at S&P Global Commodity Insights.
“However, with the deferment of OPEC+ production ease, we are expecting tighter supply as there will be limited medium to heavy crude supplies added back to the market. That said, the impact will be mitigated by the higher production of heavy Canadian crudes. Russian fuel oil barrels are expected to continue to flow into Asia, but intensifying conflict between Russia and Ukraine could pose some upside risk to the cracks should supply be disrupted,” Wee added.
Traders also expect flows of Venezuelan and Iranian barrels toward Asia to buoy regional HSFO supplies somewhat, although shifts in political stances during Trump’s presidency are likely to cast uncertainties in the longer term and increase price volatility.
Still, steady HSFO downstream bunker demand around the Singapore hub may continue to support valuations, as a significant portion of sales volumes was fixed basis term contracts in addition to spot volumes, amid limited supply locations compared with its low sulfur counterpart.
“We’re calling the HSFO market [in Asia] to be mostly balanced to slightly grown for 2025,” a Singapore-based trader said.
Singapore’s HSFO bunker sales totaled 18.357 million mt over January-November, outperforming the 16.722 million mt in full-year 2023, the latest data from the Maritime and Port Authority of Singapore showed.
HSFO still affordable enough to attract attention
The spread between Singapore 0.5% sulfur marine fuel oil and benchmark HSFO cargo prices — the Hi-5 spread — has narrowed over 30% so far in 2024. Platts, part of Commodity Insights, assessed the spread at $87.99/mt Dec. 20. The spread has averaged $127.24/mt in 2024 so far, compared with an average of $147.48/mt in 2023 and an average of $261.09/mt in 2022.
A Hi-5 spread of nearly $50-$100/mt would likely continue to encourage some shippers to move toward scrubbers. Costs of scrubber installations have reduced sizably compared with the initial phase following the International Maritime Organization 2020 regulations, while shipyards shortened turnaround times and explored newer scrubber technologies such as improved fuel efficiency for newer retrofits and incorporating with carbon capture and storage solutions, market sources said.
“We have a steady stream of contracts, although Hi-5 spreads shrunk from previous years… Shipowners may not yet have answers to the perfect alternative over conventional fuels, other [fuel] options seem less feasible from a finance perspective and [due to] infrastructure limitations,” a source from a scrubber manufacturer said.
However, the ongoing trend of increasing HSFO bunker sales will gradually stagnate, sources said, adding that although the market will see more scrubber-installed ships in 2025, the number will be lower than the past couple of years, which saw massive post-pandemic momentum.
Also, newer decarbonization regulations in the maritime sector would gradually shift the focus from sulfur limits to carbon limits, one source added.
Looking further ahead, traders foresee major shipowners leading shifts away from conventional fuels into the alternative fuels space, although this may be less a priority for the smaller- to mid-sized family-owned shipping companies.
China remains pivotal, but could be a wildcard
A reduction from 13% to 9% in China’s tax rebates for refined product exports could further cap its HSFO feedstock procurement activities, particularly if the HSFO complex remains supportive and cracks extend the strength seen in much of the fourth quarter.
“China’s policy on fuel oil export tax rebate cuts could significantly weigh on regional HSFO markets if the cuts are deep enough to make imports economically unviable for independent refiners,” said Roslan Khasawneh, Senior Oil Analyst at Kpler.
“But for now, the pushback from refiners appears to have dampened authorities’ ambitions to reduce the tax rebates, which may end up being minimal in the interest of keeping many of the independent refiners in business,” Khasawneh added.
Downstream HSFO sales around China’s North Asian bunker hub of Zhoushan are estimated to have accounted for around 30%-35% of total bunker sales on a monthly basis in 2024, expanding from 20%-25% the previous year, according to local traders.
Source: Platts
