By Robert Harvey and Ahmad Ghaddar
LONDON (Reuters) – A spike in Egyptian imports of fuel oil used for power generation has coincided with lower supply in Europe, helping to push refiners’ profit margins for the fuel to their highest in over a year, traders and analysts told Reuters.
Firmer high-sulphur fuel oil (HSFO) prices could be mitigating a wider slump in margins for refiners, but could also boost costs for industries which use it such as in marine fuel and asphalt production, in addition to power generation.
“Strong buying for September-loading cargoes helped offset the global market weakness that usually seeps into the market after the summer burning peak in the Middle East ebbs,” said Eugene Lindell of energy consultancy FGE.
High-sulphur fuel oil is one of the least valuable products yielded from refining crude, typically trading at a discount to Brent crude. Profit margins flipped to a premium in October, peaking at a 14-month high of $1.92 a barrel on Oct. 9, according to data from financial group LSEG.
Egypt has since the summer been boosting energy imports including fuel oil to combat persistent power cuts amid rising temperatures, as it grapples with increasing demand and a growing population, as well as lower output from its gas fields.
Egypt’s fuel oil imports hit their highest since at least 2016 at 255,000 barrels per day (bpd) in September, according to Kpler data, while exports fell.
The leading supplier in September was Saudi Arabia, which also helped Egypt fund gas purchases over the summer.
Imports remain above their 2024 average of around 153,000 bpd in October, with Russia and the United Arab Emirates supplying the majority of its 173,000 bpd of imports over Oct. 1-17.
Egypt’s Petroleum Ministry did not immediately respond to Reuters’ request for comment.
Planned and unplanned refinery outages, as well as an anticipated 400,000 bpd of run cuts between September and December from weak economics, have tightened fuel oil supply in Europe and the Mediterranean, driving the “incredible strength” seen in HSFO profit margins, FGE’s Lindell said.
Two fuel oil traders active in the European market, who asked not to be named, also told Reuters that HSFO supply was tight.
Shell is undergoing major maintenance works at its Pernis facility in the Netherlands, Europe’s largest refinery, while in the Mediterranean a recent fire forced reduced production at Motor Oil Hellas’ Corinth refinery.
Longer-term factors have also tightened the fuel oil market in recent months, including reduced availability of the heavier crude oil grades that yield more residual fuels on both sides of the Atlantic.
Longer voyages given diversions away from the Red Sea because of maritime attacks by Houthi militants have also buoyed marine fuel demand this year, further supporting fuel oil prices.
(Reporting by Robert Harvey and Ahmad Ghaddar in London, and Mohamed Ezz in Cairo, editing by Alex Lawler and Emelia Sithole-Matarise)
