Analysts report that the Northwest European imports for residual fuel oil in November were at their highest level in three years. This was due to a rush to replenish the scarce supply of high sulphur fuel oils (HSFO).

The Amsterdam-Rotterdam-Antwerp (ARA) area, Europe's main trading and refining hub, received around 450,000 barrels per day (bpd) of all types of fuel oil in November, the highest monthly volume since November 2021.

According to Kpler, a trade analytics company, this compares with an average of 332,000 BPD between January and October.

The main product refined from crude is residual fuel oil. It is used widely in the construction and maritime industries. The structural changes in Europe's refinery industry have made it more susceptible to shortages and, therefore, more dependent on imports.

The demand for bunkering fuel oil, or fuel for vessels, has increased in ARA, at a moment when the supply has been slowed due to maintenance and economic cuts at local refineries.

Royston Huan is an analyst with Energy Aspects. He said that the tightness of HSFO in Europe can be attributed in part to the high levels of maintenance in the Mediterranean region.

Huan cited incidents at Greece Motor Oil Hellas Corinth, and Turkey Tupras Izmir Refineries that typically export HSFO.

Xavier Tang, analyst at Vortexa, said that the HSFO supply shortage in Europe is due to lower fuel oil production as European refiners reduced run rates because of low margins.

The abundance of supplies in Asia allowed for the diverting of supplies from east of Suez towards northwest Europe despite the higher shipping costs resulting from longer journeys around Africa, as commercial vessels continue not to use Red Sea due to Houthi maritime attack.

Kpler reports that fuel oil imports from east of Suez to ARA reached a record high of 126,000 bpd during November as shipments to ARA increased sharply from the Middle East, India, and other sources.

Singapore, the world's largest bunkering hub, is a major source of fuel oil.

Huan, Energy Aspects, said that the tightness of the West has reduced the spreads between HSFO barrels from Europe and those from Mediterranean countries. This means there's less incentive for arbitraging Europe Mediterranean barrels to Europe.

Traders from Asia could have also been trying to make money on the increased profit margins of HSFO since October in Europe, due to a reduced supply that pushed up prices.

The supply of HSFO in Europe has also decreased due to longer-term trends. Due to the EU embargo on Russian oil, European refiners are without Urals crude. This heavier grade yields more residual fuels. (Reporting and editing by Robert Harvey, Ed Osmond and Enes McCartney. Additional reporting and editing by Jeslyn Lerh and Enes tunagur.

(source: Reuters)