Refiners are enjoying the highest fuel oil premium in two years thanks to tighter supply resulting from lower Russian shipments of the heavy product, Bloomberg reported, citing data from Asia.
According to the report, the normally unattractive oil product, which is also among the cheapest products of a barrel of crude, has suddenly become attractive as the supply of fuel oil from Russia has drastically decreased due to Western sanctions against Moscow.
Soaring natural gas prices also contributed significantly, prompting some utilities to switch to fuel oil from natural gas because of the price difference, the report also notes.
The US embargo on Russian oil and products has been another contributor: due to the ban, some fuel oil shipments from the Middle East that would normally have been destined for Asia are now heading to the United States. States, which limits the availability of fuel in the largest consuming regions.
Latest crude oil and fuel price trends have pushed Asian refiners’ profits to record highs, Reuters reported last month. Strong demand over the holiday season as Asian economies return to normal after pandemic shutdowns provided substantial demand support, as did exports to Europe to offset sanctioned Russian oil.
The flip side, according to the report, is that many refiners were already operating at full capacity in April in an effort to extract the last extra dollar from the gap between supply and demand. This leaves little room for production increases of any fuel or petroleum product.
In the United States, refiners are also to harvest the benefits of the current imbalance in the oil market and reduced global refining capacity during the pandemic, as demand rebounded faster and stronger than expected.
European refiners seem to be the exception due to EU sanctions against Russia which are now prompting them to seek alternative crude suppliers.
By Irina Slav for Oilprice.com
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