A surge in Egypt’s fuel oil imports has coincided with a tightening supply in Europe, leading to the highest profit margins for refiners in over a year. The increased demand, primarily for power generation in Egypt, has provided a crucial lifeline for the high-sulphur fuel oil (HSFO) market, which typically sees lower demand as the summer ends. As Europe grapples with supply constraints and refinery outages, Egypt’s appetite for fuel oil has kept prices and profit margins buoyant.
Egyptian Imports Spike as Power Cuts Persist
Egypt has faced rising demand for energy amidst recurring power cuts and increasing temperatures, prompting the government to ramp up its fuel oil imports. In September, Egypt imported 255,000 barrels per day (bpd) of fuel oil, the highest since at least 2016, as the country struggled to meet its growing energy needs.
| Month | Fuel Oil Imports (bpd) |
|---|---|
| September 2024 | 255,000 |
| 2024 Average | 153,000 |
| October 1-17 | 173,000 |
Key suppliers of Egypt’s fuel oil include Saudi Arabia, which has been instrumental in funding Egypt’s gas purchases, along with Russia and the United Arab Emirates. This spike in imports, combined with reduced exports, reflects Egypt’s urgent need to shore up its energy supplies during the critical summer months and beyond.
Tight Supply in Europe Boosts Refiners’ Margins
While Egypt’s demand for fuel oil has surged, European supplies have tightened due to planned and unplanned refinery outages and weak economic conditions, which are expected to reduce refinery output by about 400,000 bpd from September through December. This supply crunch has pushed HSFO prices up, flipping profit margins from a discount to Brent crude to a 14-month high of $1.92 a barrel in October.
- Key Refinery Issues:
- Shell’s Pernis Facility (Netherlands): Undergoing major maintenance.
- Motor Oil Hellas (Greece): Reduced production following a recent fire.
Fuel oil traders have also noted the reduced availability of heavier crude oil grades, which yield more HSFO, tightening the market further. The situation has been exacerbated by longer voyages for marine fuel shipments, as vessels avoid the Red Sea due to maritime attacks by Houthi militants.
Impact on Global Markets and Industries
The tighter supply and increased demand for HSFO are affecting various industries. While refiners are benefiting from the improved margins, industries that rely on fuel oil—such as marine fuel and asphalt production—are facing higher costs. The upward pressure on fuel oil prices is likely to continue as European supply remains constrained and Egypt’s energy needs show no signs of abating.
Overall, the Egyptian demand for fuel oil has provided critical support for the European market, but it also signals ongoing challenges for industries reliant on this traditionally undervalued byproduct of crude oil refining.
