Everbright Futures: Why Are Geopolitical Risk Premium, Fuel Oil, and Crude Oil Moving in Different Directions?

On February 26, the main futures contract for fuel oil 2605 broke above the 3,000-point mark during trading, rising over 2%. Geopolitical premiums are evident, with Iran’s high-sulfur exports limited. Since January, U.S. sanctions have intensified, and February’s high-sulfur fuel oil shipments continued the weakness seen in January, leading to a widening supply gap for high-sulfur fuel oil in Asia. Additionally, the Russia-Ukraine conflict has been ongoing for four years. Since the end of last year, Western sanctions have increased, restricting exports from Russia’s two core oil product producers (Rosneft and Lukoil). In the first month after sanctions, exports fell more than 17% month-on-month. Meanwhile, ongoing Ukrainian attacks on Russian refineries have further worsened export data to Asia. Currently (February 26), the U.S. and Iran are in the third round of indirect negotiations. Funds are betting on geopolitical risk premiums in fuel oil, and in the short term, the latest developments in the U.S.-Iran situation are expected to impact the crude oil and fuel oil markets. (Everbright Futures)