Ship Fuel Shortage Looms as War Disruptions Push Refiners Toward More Profitable Fuels

A growing shortage of fuel oil used by ships and power generators is emerging as a new pressure point for global energy markets, with refinery disruptions and restricted tanker movements tightening supplies across key trading hubs.

The squeeze is being driven by a combination of geopolitical conflicts, damaged refining infrastructure and changes in refinery economics. Producers facing constrained crude supplies are increasingly choosing to maximise output of higher-value fuels such as diesel and gasoline, leaving less capacity and feedstock available for fuel oil.

The development comes even as crude oil prices have not experienced the same scale of increase seen in some refined products. Disruptions affecting refineries in Russia and the Middle East, alongside difficulties moving tankers through important shipping routes, have created a more complicated market in which refined fuels are becoming increasingly expensive.

Fuel oil deficit expected to widen

The market for fuel oil, widely used as marine bunker fuel and also by some power plants, is expected to move into a significantly larger deficit during the third quarter of 2026.

Industry estimates cited by Reuters indicate that the shortfall could reach about 218,000 barrels per day, compared with only around 6,000 barrels per day a year earlier. That represents a substantial deterioration in the supply balance.

The underlying problem is not simply weaker production. Refiners are having to make difficult decisions about which products to prioritise when crude supplies, refinery capacity and transportation are under pressure.

Diesel, gasoline and other refined fuels generally offer stronger economic returns than fuel oil. As a result, refiners have an incentive to direct available processing capacity toward those products, reducing the amount of fuel oil reaching international markets.

Asia faces the biggest risk

Asian markets could feel the impact particularly strongly because the region depends heavily on oil and refined-product flows from the Gulf.

Singapore is especially important because it is one of the world's largest marine-fuel trading and bunkering centres. The city-state imports more than half of its roughly 1 million barrels per day of bunker-fuel demand, according to Kpler data cited by Reuters.

Any prolonged disruption to Gulf shipping therefore has the potential to affect not only Singapore but also the wider Asian shipping industry.

The Strait of Hormuz has become a major source of uncertainty. Maritime traffic through the strategic waterway has fallen sharply amid attacks involving the United States and Iran. Kpler data showed an average of only about 10 commodity vessels a day passing through the strait during the 10 days leading up to September 7, the lowest level since May.

That reduction in vessel movements creates another layer of difficulty for fuel buyers. Even when refined products are available, getting them to customers can become more expensive and complicated when ship operators face security concerns or avoid particular routes.

Singapore fuel prices surge

The tightening market has already been reflected in bunker fuel prices.

Very low sulphur fuel oil prices in Singapore have risen sharply since the Iran conflict began, increasing about 76%, according to Reuters. That compares with a roughly 40% rise in Brent crude over the same period.

The divergence highlights how the current energy shock is increasingly affecting refined products rather than crude alone.

Fuel oil inventories are also under pressure. Stocks at major storage and trading locations, including Singapore, the Amsterdam-Rotterdam-Antwerp region and Fujairah, are around 30% below seasonal norms, Reuters reported.

Lower inventories leave consumers with less protection against further supply disruptions. If refinery output remains constrained or shipping routes continue to face interruptions, buyers may have to compete more aggressively for available cargoes.

Russia and Middle East disruptions add pressure

The supply problem has several geographic sources.

Refinery damage in Russia has reduced production, while disruptions in the Middle East have affected both refining activity and exports. Kuwait, for example, has seen a sharp reduction in fuel-oil exports, adding to the pressure on international availability.

China is also adjusting its refinery operations and export strategy, with refiners reducing processing and exports in an effort to conserve domestic inventories.

These developments mean that markets cannot easily rely on one region to compensate for shortages elsewhere.

Asia's refined-fuel market has already experienced a significant decline in imports. Reuters reported that Asian refined-fuel imports fell to 5.10 million barrels per day in August, down from 5.61 million bpd in July and almost 2 million bpd below levels seen before the war.

Shipping costs could rise further

A prolonged shortage of bunker fuel could have consequences well beyond the energy sector.

Marine fuel is one of the major operating expenses for shipping companies. If bunker prices remain elevated, shipowners could face higher voyage costs. Those expenses can eventually feed into freight rates and the cost of transporting goods internationally.

That creates a potential second-round impact on global supply chains. Higher shipping costs can raise the expense of moving commodities, manufactured goods and other products between regions.

For power generators that rely on fuel oil, higher prices could also increase operating costs and put additional pressure on electricity markets in affected regions.

Market outlook remains uncertain

Oil markets are currently dealing with an unusual combination of crude supply disruptions, refinery damage and restrictions on maritime traffic.

Oil prices rose again on September 7 as renewed U.S.-Iran attacks involving vessels increased fears that disruptions could persist. Brent crude was trading near $96.80 a barrel, while U.S. West Texas Intermediate was around $92.14.

For the shipping industry, however, the immediate concern is increasingly about the availability and cost of refined fuels rather than crude alone.

Unless refinery operations recover, inventories rebuild and maritime traffic through critical routes normalises, the fuel-oil market could remain tight. For shipowners and global traders, that means bunker costs may become another significant consequence of the wider geopolitical crisis.