CITIC Futures: Geopolitical factors drive continued rise in fuel oil futures prices

An outbreak of the Iran-U.S. conflict has driven a sharp rise in fuel futures prices, as high fuel import dependence and strong geopolitical attributes have come into play. The tense geopolitical situation around Iran not only affects expectations for Iran’s fuel oil exports and for Middle East fuel exports, but will also affect expectations for Middle East natural gas supply. The energy crisis effect has driven fuel futures prices higher, and a surge in freight rates has also become a catalyst for the rebound in fuel. Going forward, investors need to watch developments in the Iran-U.S. situation; with continued geopolitical disruptions, fuel futures prices are likely to rise more easily than they fall. Once the Iran-U.S. reach an agreement, it will likely be a significant bearish factor for high-sulfur fuel. In the long run, Middle East fuel oil power generation demand will gradually be replaced by natural gas and solar PV, creating a long-term downside for high-sulfur fuel: after Saudi Arabia’s fuel oil power generation demand is replaced, Saudi Arabia is expected to increase fuel exports; the asphalt-fuel price spread has continued to plunge sharply, and an escalation in geopolitics has clearly pushed up fuel futures prices. (CITIC Futures)