Since October this year, fuel oil futures prices have been falling steadily as crude oil prices gradually shifted downward. Recently, both high-sulfur and low-sulfur fuel oil futures hit new lows. During this price decline, the spread between high-sulfur and low-sulfur fuel oil fluctuated sharply, and as of now, it still exhibits the characteristic of “low-sulfur being strong while high-sulfur is weak.”

Crude Oil Price Decline

From a cost perspective, weak crude oil prices have been a primary factor weighing on fuel oil futures. On October 9, Israel and Palestine reached a ceasefire agreement in the Gaza Strip, significantly reducing geopolitical risks in the Middle East. This led to a sharp decline in the geopolitical risk premium that had long supported crude oil prices. Concurrently, refineries in the Northern Hemisphere entered their fall maintenance period in Q4, causing a rapid drop in U.S. refinery utilization rates and a swift weakening of crude oil demand. The U.S. also entered its extended gasoline off-season, further depressing crude demand. On the supply side, OPEC+ maintained its production increase pace, gradually highlighting the supply-demand imbalance in the crude market.

Notably, recent signs of easing in the Russia-Ukraine conflict emerged. Negotiators from the U.S. and Ukraine continued talks in Berlin on December 15. U.S. officials stated that overall progress in the negotiations was “very positive,” with preliminary consensus reached on several key issues and steps being taken toward a peace agreement. This suggests that the most significant geopolitical risk affecting the crude oil market since 2022 may be substantially diminishing, leading to a further downward shift in crude oil prices. The sustained weakness in crude oil futures prices has set the tone for a medium-to-long-term bearish trend in the fuel oil market.

Weak Fundamentals

Looking at fundamentals, the fuel oil market also exhibits weakness, though structural differences exist between high-sulfur and low-sulfur fuel oil supply and demand, with their price spread volatility intensifying.

The high-sulfur fuel oil market overall presents a pattern of “loose supply and weak demand.” On the supply side, Russian high-sulfur fuel oil shipments are gradually increasing, while Middle Eastern refineries are restoring export capacity following maintenance shutdowns, with December shipments expected to rise significantly month-on-month. Simultaneously, sanctions-impacted Iranian high-sulfur fuel oil floating storage continues to accumulate, further intensifying supply pressure. On the demand side, Asian high-sulfur fuel oil imports have gradually declined since June. Meanwhile, strengthened refined product crack spreads have prompted refineries to increase operating rates, passively boosting high-sulfur fuel oil supply and creating a “supply-up, demand-down” dynamic.

The low-sulfur fuel oil market presents a “short-term tight supply-demand balance with long-term pressure” pattern. The tight supply-demand situation for low-sulfur fuel oil stems primarily from increased supply disruptions. Recently, unexpected maintenance at key refineries has become frequent—such as Kuwait's Al-Zour refinery undergoing repairs until late December due to a fire and Nigeria's Dangote refinery extending its maintenance—leading to a significant reduction in global low-sulfur fuel oil shipments. However, from a long-term perspective, the global oversupply of low-sulfur fuel oil remains unchanged. As the integration of refining and petrochemicals accelerates, the number of refineries globally capable of producing low-sulfur fuel oil will increase substantially, with new capacity in the Middle East and Asia-Pacific regions continuing to come online.

Summary

Looking ahead, costs remain one of the key factors influencing the price trend of fuel oil futures. With international oil prices recently hitting yearly lows amid bearish macroeconomic and geopolitical factors, vigilance is warranted against the risk of a breakout decline. Long-term, the crude oil market's oversupply pattern remains unchanged, with prices expected to trend downward in a volatile manner. Based on this assessment of crude oil price trends, fuel oil futures are projected to continue their downward trajectory, though internal performance will likely diverge, with low-sulfur fuel oil outperforming high-sulfur fuel oil.

If you have any questions, please feel free to contact SunSirs with support@SunSirs.com.

As an integrated internet platform providing benchmark prices, on December 25th, the SunSirs' benchmark price for fuel oil was 5350.00 RMB/ton, unchanged from the beginning of the month.

Application of SunSirs Benchmark Pricing：

Traders can price spot and contract transactions based on the pricing principle of agreed markup and pricing formula (Transaction price=SunSirs price + Markup).

If you have any inquiries or purchasing needs, please feel free to contact SunSirs with support@sunsirs.com.