Last week saw a truly historic drawdown in oil product inventories in Singapore, with total stocks dropping by over 6.1 million barrels, or 13%, in just one week.
While there was a drop across the range of grades of oil products, the largest drops occurred in light distillates (gasoline, naphtha, LPG etc) and middle distillates (diesel, jet fuel, heating oil etc).
Source: Commodity Context
With Singapore being the source for almost 1 in 5 barrels of fuel imported into Australia, this drop may prove to be cause for concern if it is the beginning of a trend.
But amidst the global focus on diesel, gasoline and jet fuel, there is another fuel that we rely on to deliver almost every piece of goods reliant on international seaborne trade: bunker fuel for heavy marine engines.
As refiners attempt to wring every extra litre of diesel and jet fuel out of a barrel of oil, it has meant that historically less attractive and lucrative byproducts such as bunker fuel (or fuel oil depending on one’s definition) are being produced less.
As the chart below illustrates, total fuel oil stocks in Asia continue to dwindle well below their seasonal norms.
If we take a broader look at other regions and some of the other major ports for fuel oil stocks, it reveals a concerning picture.
In Europe, fuel oil stocks have fallen more than 70% compared with their five-year average for this time of year.
In Japan, the Japanese government has stopped reporting on its fuel oil inventories.
At Fujairah in the United Arab Emirates, which pre-war was one of the busiest ports in the world, bunker fuel stocks have collapsed to less than one quarter of their five-year average.
The lack of stock at Fujairah in particular could throw up some challenges if the Strait of Hormuz were to reopen, forcing ships to take on greater amounts of fuel elsewhere to make the trip to the Persian Gulf, instead of taking the more traditional approach of stocking up on relatively cheap fuel oil at Fujairah before or after picking up their oil cargoes.
The fuel oil issue is just one of many emerging in the world of oil-derived products, with everything from naphtha for making plastics to ethane for synthetic fabrics suffering from increasing supply issues as refiners concentrate on providing what we generally consider to be the basics, such as gasoline, diesel and jet fuel.
Ultimately, despite the growing level of hubris surrounding the oil supply and its refined derivatives, the supply situation continues to worsen and the longer the current crisis in the Strait of Hormuz continues, the more challenging the circumstances the world faces will become.
