Recently, fuel oil used for shipping and power generation unexpectedly experienced a strong rebound. Efforts towards emission reduction policies and clean energy substitution have not suppressed demand as anticipated; instead, they have been offset by the rise of the “shadow fleet” and the large-scale rerouting caused by the Red Sea situation.
High-sulfur fuel oil (HSFO), which should have been gradually marginalized by marine diesel and low-sulfur fuel oil, has returned to the center of the market against the backdrop of many shipowners relying on scrubbers. Combined with the ongoing Western sanctions on Russia and the continued escalation of Red Sea attacks, this energy demand, which was supposed to decline, has instead been pushed to a new high.
Energy Aspects analyst Royston Huan previously pointed out: “The fuel oil market has shown remarkable resilience. Persistently strong power generation demand, coupled with shipping disruptions caused by Houthi attacks in the Red Sea, have both pushed demand beyond expectations.”
According to the International Energy Agency’s (IEA) annual report released in June, since 2019, demand for diesel and jet fuel has declined significantly, gasoline consumption has grown by only 1.9%, while fuel oil demand has bucked the trend, rising by 4.8%, reaching an average of 6.5 million barrels per day in 2025.
In the short term, refinery procurement may still provide support for fuel oil, but as some refineries in Saudi Arabia and Brazil resume production after maintenance ends between November and December, market supply and demand will gradually loosen.
As early as 2020, the IEA predicted that fuel oil demand growth from 2019 to 2025 would be only 1.6%, the lowest among all major refined oil products. However, the actual trend has significantly outperformed expectations, especially in the Middle East and North Africa regions, where reliance on fuel oil for power generation has increased due to frequent extreme heat.
Data shows that Saudi Arabia and Egypt’s fuel oil imports increased by 33% year-on-year in 2024, and so far in 2025, they remain about 31% higher than in 2023. At the same time, Western sanctions on Russia have also led countries like Saudi Arabia to import large quantities of discounted Russian fuel oil, thereby freeing up more crude oil for export.
The Red Sea crisis has also significantly boosted fuel oil consumption. More and more ships are abandoning the Suez Canal route and opting to detour via the Cape of Good Hope, increasing voyage distance and fuel consumption. According to estimates by consulting firm FGE, such detours add approximately 100,000 barrels per day of extra fuel oil demand, equivalent to 2% of global marine fuel.
Although the IEA believes the actual pull-on bunkering demand from Red Sea disruptions is lower than expected, at the market level, this factor still cannot be ignored.
Simultaneously, Western sanctions on Iran and Russia have also fostered a large “shadow fleet.” Most of these ships are old (15-20 years or older in service), often operate without mainstream Western insurance or safety certification, and mostly continue to burn high-sulfur fuel oil.
According to industry and analyst estimates, the current “shadow fleet” consists of between 1,200 and 1,600 tankers, accounting for about one-fifth of the global tanker fleet. These vessels consume over 106,000 barrels of fuel per day, approximately equal to 2% of global demand. FGE analyst Eugene Lindell stated plainly that these old ships are inefficient and have long voyages, further amplifying fuel oil consumption.
The International Maritime Organization (IMO) implemented sulfur cap regulations in 2020, lowering the sulfur content limit for marine fuels from 3.5% to 0.5%, which initially hit demand for high-sulfur fuel oil. However, the large-scale adoption of scrubbers has gradually restored HSFO consumption.
According to DNV data, by the end of 2024, over 6,000 ships globally were equipped with scrubbers, and the number is expected to reach 6,523 by year-end, higher than the 4,348 ships in 2020.
Although the IEA expects fuel oil demand to gradually decline after 2026, averaging about 6.1 million barrels per day by 2030, regulatory uncertainty may slow the pace of decline. Energy Aspects notes that the US government’s firm stance and resistance towards the IMO’s emission tightening and carbon pricing proposals could delay the implementation of policies.
