Fuel oil used in ships and power plants is seeing unexpected demand, with efforts to curb its use more than offset by an expanding "shadow fleet" of oil tankers serving Russia and others, and longer shipping routes as vessels avoid the Red Sea.
Instead of switching to alternatives such as marine gasoil and low-sulphur fuel oil, many shippers have installed exhaust gas cleaning devices known as scrubbers to continue using high-sulphur fuel oil. Western sanctions and attacks on shipping in the Red Sea have further driven this unforeseen demand.
"Fuel oil markets have shown remarkable resilience, with demand outperforming expectations due to several key factors, such as still-firm power generation demand in the Middle East and Red Sea shipping disruptions because of Houthi attacks," said Royston Huan, analyst at Energy Aspects.
While global demand for diesel and jet fuel have fallen globally since 2019 pre-pandemic levels, and gasoline consumption has risen by just 1.9 per cent, fuel oil demand is up by 4.8 per cent to an average 6.5 million barrels per day (bpd) in 2025, according to the International Energy Agency’s June annual report.
In 2020, the IEA had forecast fuel oil demand would grow by just 1.6 per cent between 2019 and 2025 — the slowest pace among major refined fuels.
IEA analyst Ciaran Healy told Reuters that fuel oil use in power generation has slightly outperformed the agency's expectations in recent years, largely due to hotter summers in the Middle East and North Africa.
Saudi Arabia and Egypt's fuel oil imports rose by 33 per cent year-on-year in 2024 and remained around 31 per cent higher in 2025 so far compared with 2023, according to shipping data firm Kpler.
Western sanctions on Russia have also contributed, with Saudi Arabia importing discounted Russian fuel oil to free up more of its own crude for export.
More ships now travel around the Cape of Good Hope instead of the Suez Canal, boosting fuel oil demand, as conflict in the Red Sea continues.
Vessels have avoided the region since 2023 due to attacks by Yemen's Iran-aligned Houthis, who aim to disrupt global shipping in protest over the war in Gaza.
These diversions have increased fuel oil demand by around 100,000 bpd, roughly two per cent of global bunker demand, according to consultancy FGE.
The IEA, however, believes disruption to shipping in the Red Sea has given a smaller-than-anticipated boost to bunkering volumes, Healy said.
Western sanctions on Iran and Russia have also fuelled the growth of a shadow fleet of ageing vessels likely running on high-sulphur fuel oil, or HSFO, said Valerie Panopio, analyst at Rystad Energy. Such vessels typically have opaque ownership structures and sail without top-tier Western insurance or safety certification cover.
The "shadow fleet" comprises between 1,200 and 1,600 tankers, according to estimates from industry sources and analysts, including Lloyd's List Intelligence and shipbroker Gibson, representing around a fifth of the global tanker fleet.
That would imply shadow fleet tankers consume more than 106,000 bpd, or about two per cent of global demand, based on Reuters calculations using 2023 bunker data from the International Maritime Organisation.
"Many of these vessels will be proverbial rust buckets that are more than 15 and, in some cases, even older than 20 years," said FGE's Eugene Lindell, adding that these ships are less fuel-efficient and undertake long-haul routes, further increasing fuel oil consumption.
The IMO's 2020 regulations lowered the sulphur content limit in marine fuels from 3.5 per cent to 0.5 per cent, initially dampening demand for HSFO.
However, widespread adoption of scrubbers — onboard systems that allow ships to burn HSFO while reducing its environmental impact — has driven a recovery in consumption.
By the end of 2024, more than 6,000 vessels had installed scrubbers, according to maritime consultancy DNV, which expects the number to reach 6,523 by year-end, up from 4,348 in 2020.
Despite forecasts by the IEA showing fuel oil demand declining after 2026, averaging 6.1 million bpd by 2030, opposition to IMO regulations could sustain demand. Energy Aspects said that US President Donald Trump's administration has resisted the IMO's tighter emissions rules and proposed carbon pricing, which may delay their implementation.
"Fuel oil demand will be sticky for, at least, the end of this decade," said Kenneth Tveter of shipbroker Clarksons.
(Reporting by Enes Tunagur, editing by Alex Lawler, Dmitry Zhdannikov and Louise Heavens)
