Huatai Futures: If the geopolitical situation remains relatively controllable, the fundamentals of fuel oil do not have the momentum for sustained strength.

Recent fluctuations in the energy sector have been significantly influenced by the Iran situation, and the overall situation remains unclear. Caution is advised in the short term, with close attention to the development of the situation.
From the perspective of the asset’s fundamentals, the market structure for high-sulfur fuel oil has recently been relatively strong, with good downstream shipping fuel demand. Domestic refineries’ substitution of imported crude oil has also boosted fuel oil import demand. However, there is no expectation of shortages in the market. Russia’s shipments in January have significantly increased, which will translate into higher port arrivals in Asia in February. Overall, under the premise of relatively controllable geopolitical risks, the fundamentals of high-sulfur fuel oil do not support sustained strength, especially in an environment of high freight costs, where overvaluation may suppress downstream refinery demand.
For low-sulfur fuel oil, the current fundamentals are not significantly conflicting. Supply increases in certain regions like Kuwait exist, but overall pressure remains limited. In the short term, prices mainly follow crude oil fluctuations. (Huatai Futures Research Institute)