Traders and analysts have indicated that "the fuel oil market in Asia may face pressure in 2024, as exports from Kuwait are expected to increase while Russian supplies to China and India will remain high." Prices for very low sulfur fuel oil will depend on exports from the Al-Zour refinery in Kuwait, whereas prices for high sulfur fuel oil are likely to stay within a narrow range due to ample supplies. Data from the London Brent futures curve showed that with a gradual increase in supplies, refining margins for fuel oil are expected to trend downward in 2024, while the price spreads between spot and forward deliveries are anticipated to narrow.
Here are the key factors to monitor in 2024:
**Kuwaiti Exports**
Traders are awaiting the Al-Zour refinery in Kuwait to reach its full capacity for commercial exports next year. Exports of low sulfur fuel oil from Kuwait increased in the first nine months of 2023 as the refinery ramped up spot sales, but volumes fell in the fourth quarter after the decision to sell some production through specific term contracts.
**Russian Flows**
Russian fuel oil exports have been flooding into trading centers in Asia and the Middle East since Western countries imposed sanctions and a price cap on Russian refined products on February 5, following the war in Ukraine. Traders and analysts stated that these exports, mainly comprising direct distillation grades and high sulfur content, will remain plentiful through 2024, impacting the high sulfur fuel oil market. China and India were the primary destinations for Russian fuel oil in 2023, as refineries increased their purchases of discounted fuel primarily to replace crude oil. China's imports of fuel oil hit their highest levels in a decade in June 2023, fueled by demand for Russian oil, but traders ruled out surpassing 2023 levels in 2024.
**Emerging Capacities**
Traders are also looking forward to progress made by new refining companies, including the Dangote refinery in Nigeria and coking units in Mexico, which could lead to increased exports of residuum (heavy fuel oil).
