China refineries seek less fuel oil as they opt for cheaper crude, sources say

SINGAPORE — China's fuel oil demand is set for a long road to recovery after imports touched a record monthly low as refiners cut output and opted for cheaper crude in the wake of the US-Iran war, industry sources said.

The lackluster appetite at one of Asia's top importers of high-sulphur fuel oil (HSFO) is expected to cap prices, even though the market strengthened this week after Washington and Tehran stepped up attacks in the Middle East, disrupting Gulf supplies shipped through the Strait of Hormuz.

Asian refiners' margin for 380-centistoke HSFO rebounded to a discount narrower than US$2 (S$2.58) a barrel to Brent on Wednesday (July 15), the highest in more than a month, LSEG data showed. 

Meanwhile, the 380-cst HSFO crack to Dubai rose to a premium above $3.25 a barrel.

"Regular crude oil is currently trading at ICE levels of minus US$5 to minus US$8 a barrel," said a trading source from a Chinese refiner, who declined to be named due to commercial sensitivity. "Fuel oil can't compete with that now."

Refinery run rates in China plummeted to a ten-year low in June due to weak domestic demand and export curbs on refined oil products after the conflict broke out. 

This has dampened refineries' demand for fuel oil, an alternative feedstock to crude oil.

Imports hit record low in May

China's total fuel oil imports in May slumped to a record monthly low of about 559,000 metric tons (115,000 barrels per day), based on LSEG data that dates back to 2004. 

These include HSFO processed at refineries or used as marine fuel supply.

June fuel oil imports totalled 700,000 to 800,000 tons, according to Vortexa ship-tracking data, rebounding slightly from May but hovering well below typical import volumes.

China's fuel oil imports averaged at about 2.29 million tons per month in the first quarter of 2026 while the monthly average in 2025 was at 1.8 million tons.

Fuel oil imports could have rebounded slightly in June and July, but they are mostly used for ship refuelling instead of refineries, said traders and analysts.

Chinese refineries typically import fuel oil from Russia as well as from the Singapore and Malaysia trading hub.

More competitively-priced crude oil also hampered appetite for fuel oil, according to Asian trading and refining sources.

Spot offers for Russian straight-run fuel oil are currently muted amid low buying interest, traders said. Russian fuel exports have also dropped as Ukraine ramped up attacks on Russian infrastructure.

Chinese refiners have turned to discounted crude as they sought to utilise additional crude import quotas issued this year.

While Beijing eased export curbs for refined products this month, it was not immediately clear if this will propel a sharp recovery in run rates and feedstock purchases, analysts said.

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