Sources in the industry said that despite a rally on the high-sulphur fuel (HSFO) markets of Asia, boosted by lower Middle East oil exports and OPEC+'s cuts, it is likely to slow down as Russian exports will remain elevated, and ease supply.

The tighter supply of HSFO has increased the premiums for spot HSFO and the refining margins to nine-month highs in Asia, increasing costs for shippers and utilities that use this fuel.

In recent weeks, Asia's HSFO exports dropped. More barrels are now heading to the Middle East or remaining there in order to meet summer power demand.

LSEG ship tracking data showed that monthly exports of Middle East products to Asia from a key supplier fell below 1.5 million metric tonnes in April and may, compared to more than 2 millions tons in March.

The Organization of the Petroleum Exporting Countries (OPEC+) and its allies have continued to cut their output, resulting in a tightening of heavy sour crude supplies from major producers like Saudi Arabia and the United Arab Emirates. This has also reduced the refiners’ fuel oil production.

Several traders stated that the recent strength of the market will also attract more Russian barrels into the region in the latter half of the month and relieve current tightness.

"HSFO cracks will ease as we expect Russia to continue exporting HSFO at its current level of around 600,000 barrels a day in June," said Palash Jain. A Middle East oil analyst with consultancy FGE noted that several Russian refineries have resumed their operations following drone attacks from Ukraine.

Emril Jamil, LSEG Oil Research analyst, said that the HSFO Market will be weaker when OPEC releases more supplies in the fourth quarter.

Backwardation is the market structure in which prices for immediate months are higher than future months' prices, indicating a tight supply.

On Sunday, OPEC+ decided to extend the majority of their deep oil production cuts until 2025. However, they also planned to begin phasing them out from October.

Fuel oil prices have been dropping from their recent highs, and the rally in fuel oil has slowed down.

The difference between the front-month 380 centistoke (cst), HSFO crack and Dubai crude widened on Thursday to approximately $6.40 a barrel, compared to $4 at end-May.

Traders and analysts said that the recent strength in prices has led to a decline in Chinese demand for HSFO used as a feedstock by refineries.

In April, fuel oil imports to China surpassed 2.2 million tonnes, the highest level since at least 2020. Refiners increased purchases, while traders imported more shipments from Venezuela, Iran, and other countries. Ship-tracking data by LSEG and Kpler revealed that imports fell to 2 million tonnes in May.