US turns to Fujairah for fuel oil as Russian flows to Middle East surge

The Middle Eastern oil hub of Fujairah in the UAE has emerged as a key importer of Russian fuel oil in recent months, with the shift in trade flows coinciding with a surge in fuel oil exports from Fujairah to the US as its refineries look to replace Russian fuel oil feedstocks, according to trading sources and shipping data.

Russian oil flows have changed dramatically since the Kremlin's invasion of Ukraine, and this has particularly affected Moscow's fuel oil exports.

Most Western energy companies have shunned Russian oil since Russian invaded Ukraine on Feb. 24. Sanctions on Russian oil by the US, the UK and the EU have also curbed the flow of Russian oil in these regions.

Russian refineries are major producers and exporters of fuel oil and feedstocks. These include high sulfur fuel oil, high sulfur vacuum gasoil, low sulfur vacuum gasoil, high sulfur straight run fuel oil and low sulfur straight run fuel oil.

These fuel oil feedstocks are crucial for processing in the secondary units of complex refineries.

Middle East as pivot for Russian oil

Russia used to supply the bulk of its fuel oil to Europe but now regions like the Middle East have become a key outlet.

Pre-war high sulfur fuel oil imports into Europe were up to 90% Russian, according to market sources. Russian fuel oil exports to Fujairah have increased noticeably, even beyond seasonal utility demand.

Fuel loadings from Russia to Fujairah were at a record-high of 527,000 mt (116,00 b/d) in June, according to preliminary estimates from data intelligence firm Kpler. This compared with 403,00 mt and 482,000 mt in May and April, respectively. In February, only 86,000 mt of Russian fuel oil flowed to the Fujairah hub, Kpler data showed.

Fujairah is now the world's third-largest global bunkering hub after Singapore and Rotterdam. Connected to oil production in OPEC's third-largest producer by a 240-mile-long 48-inch wide export pipeline from Abu Dhabi, Fujairah now encompasses crude storage, bunkers, refining and dry bulk container freight.

The two largest exporters to Fujairah are Iran and Russia, which account for more than 90% of monthly HSFO imports, according to Kpler shipping data.

A lot of blending of refined products like fuel oil is carried out in Fujairah, according to sources.

Increased Russian fuel oil imports come as overall stocks in Fujairah have been gaining in recent weeks following a dip in early June.

Overall oil product inventories at the Port of Fujairah were little changed in the week ended June 27 after declines in middle and light distillates were offset by gains in heavy distillates and residues, according to Fujairah Oil Industry Zone data shared exclusively with S&P Global Commodity Insights on June 29.

US looks to Fujairah

Meanwhile, the US embargo on imports of Russian oil have reconfigured trade routes and created the necessity for the US to import HSFO and HSSR from other destinations.

Fujairah has historically not been a significant exporter to the US, according to Kpler shipping data and US customs data.

But since the Russian invasion of Ukraine, US has increased its purchases of fuel oil from Fujairah.

Fuel oil exports from Fujairah to the US have averaged between 255,000-400,000 mt since the end of February, according to Kpler data and the US customs data.

Since January 2017, there have only been seven instances when Fujairah has sent fuel oil to the US. Four cargoes went to the US Gulf Coast since April 2022, US customs data showed.

In recent years, the US became a key importer of Russian fuel oil and various feedstocks such as high sulfur fuel oil, high sulfur vacuum gasoil, low sulfur vacuum gasoil, high sulfur straight run fuel oil and low sulfur straight run fuel oil.

From 2018 till early-2021, Russian exports to the US had increased primarily as a result of US sanctions against Venezuela. Previously, US refiners were particularly reliant on heavy and sour Venezuelan crude, which in some cases is quite similar to Russian medium sour oil.

President Joe Biden announced March 8 that the US will ban all imports of Russian oil, natural gas and other energy. Market sources said the announcement was likely to have a significant impact on the US fuel oil market, which has relied heavily on Russian oil since 2020.