Asia's Floating Storage Shifts: A Volatility Catalyst for Fuel Oil Markets

The recent removal of three Chinese-operated floating storage units (FSUs) from Platts' Singapore fuel oil assessments marks a turning point in Asia's energy logistics landscape. This decision, driven by declining liquidity in key storage hubs, coincides with surging crude storage volumes from Iran and China—two critical players reshaping regional supply dynamics. For investors, these shifts signal a widening gap between physical storage realities and benchmark metrics, creating opportunities to capitalize on pricing discrepancies through strategic derivatives exposure.

Platts' FSU Removal: A Liquidity Drain and Benchmark Weakness

Platts' exclusion of CS Innovation, CS Prosperity, and CS Brilliance from its Market on Close (MOC) assessments reduces the pool of approved FSUs to 11, down from 14. This move reflects a stark reality: fewer storage units are actively trading in transparent, tradable markets. The three removed FSUs had been pivotal for Singapore's ex-wharf bunker and fuel oil cargo assessments, providing liquidity through their role as designated loading points.

The immediate impact? Reduced transparency in pricing. Platts' benchmarks now rely on fewer data points, increasing the risk of volatility spikes when physical supply dynamics diverge from assessed prices. . Early signs suggest widening bid-ask spreads, as traders face higher uncertainty in matching physical trades to benchmarks.

Iran and China: Floating Storage as a Geopolitical Buffer

While Platts tightens its metrics, Iran and China are expanding floating crude storage to unprecedented levels. Iranian crude exports to China hit record highs in 2025, averaging 1.7 million barrels per day (b/d), fueled by discounted pricing and sanctions evasion via ship-to-ship transfers. Meanwhile, Chinese state-owned refineries and “teapot” operators in Shandong are stockpiling crude offshore, with North China's floating storage accounting for 14.2% of global crude storage capacity.

This buildup isn't just about hedging against supply disruptions. It's a strategic maneuver to lock in discounted crude from sanctioned producers (Iran, Russia, Venezuela) while refining margins remain fragile. . However, the oversupply risks are clear: global crude inventories, though drawn down in late 2024, face renewed pressure as non-OPEC+ producers ramp up output.

The Oversupply Paradox: Storage Costs vs. Pricing Power

The Asian fuel oil market is now caught between two forces. On one hand, rising floating storage volumes—particularly for sour crudes—compress refining margins. Sour crude refining margins in Asia collapsed in early 2025 as Dubai crude prices surged due to U.S. sanctions on Russian oil exports. On the other, Platts' narrower assessment criteria may understate the true oversupply, creating a pricing disconnect.

. The data shows that while strategic reserves are stable, commercial storage (including FSUs) is at a five-year high. This suggests traders are hoarding crude in anticipation of geopolitical volatility—such as further Iranian exports post-U.S. sanctions relief—or preparing for seasonal demand shifts.

Investment Thesis: Long-Dated Options to Capture Volatility

Investors should position for widening price discrepancies between physical storage costs and Platts' benchmarks. The ideal vehicle? Long-dated options on fuel oil futures, which offer asymmetrical risk-reward profiles as volatility rises.

Here's why:
1. Structural Dislocation: Platts' reduced liquidity means assessed prices may lag behind physical market moves. A sudden release of Iranian or Russian crude from floating storage could trigger sharp price drops, benefiting put options.
2. Time Decay Mitigation: Long-dated options (e.g., 6- to 12-month expiries) allow traders to wait out temporary imbalances while capturing volatility premiums.
3. Geopolitical Catalysts: Risks like new sanctions, Middle East conflicts, or OPEC+ policy shifts could amplify storage-linked price swings.

Trade Recommendation: Buy out-of-the-money put options on Singapore fuel oil futures with expiration dates in late 2025 or early 2026. Pair this with a short position in near-term futures contracts to hedge against contango markets.

Risks to the Outlook

• Geopolitical Turnarounds: A sudden détente between Iran and the U.S. or easing of Russian sanctions could drain floating storage rapidly.
• Refinery Demand Surge: If Asian refineries boost utilization to process stored crude, oversupply could ease faster than expected.

Conclusion

The interplay between Platts' assessment changes and Iran-China storage strategies is pushing Asia's fuel oil market into a new volatility regime. For investors, this is less about predicting price directions and more about capitalizing on the widening gap between benchmarks and physical realities. Long-dated options offer a nuanced way to bet on this divergence—provided traders stay agile to shifting geopolitical and logistical headwinds.

. The rising trend here underscores the urgency of acting now before option premiums climb further.