Fuel oil traders in Asia struggle to find alternative supplies as the Iran War curtails shipments through the Strait of Hormuz from Middle Eastern suppliers. This has prompted them to look for cargoes in the West.

In the coming weeks, a'shortage' of Middle Eastern fuel oil will dent supply, and prices in key bunker ports like Singapore are set to rise further. This will increase refuelling cost for vessel owners. These higher costs will be reflected in increased prices for transport companies.

Fuel oil prices rose sharply this week due to the expectation of a growing supply, particularly for fuel oil with high sulphur content that is typically imported from the Middle East.

Kpler data shows that fuel oil exports through the Strait of Hormuz to Asia average about 1.2 million metric tonnes per month or 246,000 barrels per day. About 70% of these are bound for Southeast Asia.

The data revealed that the total fuel oil exported via the Strait of Hormuz is usually around 3.7 million tons per month.

Kpler's analysis showed that tanker transits have dropped by 90% since last week.

Even a partial disruption in transit can cause balances to tighten quickly, and increase bunker volatility, said Sumit Ritolia. He is the lead analyst at Kpler for refining and supply modeling.

WESTERN SUPPLY?CHALLENGES

Singapore is the largest ship refuelling center in the world. Prices of high-sulphur bunker oil delivered there have increased by more than 40%. Low-sulphur fuel prices have increased by more than 30%.

Fuel oil traders say that some high-sulfur supply may come from Western refineries. However, the sky-high tanker prices make trading extremely difficult.

Everyone is having trouble finding oil in the second half. "Tankers are too costly and arbitrage into Singapore is closed", a Singapore-based trader said.

The traders stated that the United States and Mexico are possible sources of supply, but the volumes are not sufficient. Venezuela is another possible source, but the cargoes are still in the West this year.

Another trader stated, "Obviously, there is also Russia. But these barrels still remain sensitive for some buyers." Russian fuel is still under sanctions due to the conflict in Ukraine.

China also continues to buy Iranian fuel oil, despite the sanctions. But those shipments were also stopped because of the conflict.

According to FGE NexantECA, any reduction in Iranian HSFO supplies would cause China's independent?fuel producers to withdraw more straight-run?? fuel oil from Russia. This would limit the availability of straight-run??? fuel oil in Singapore Strait.

Other are looking to regional?Asian refining companies, but volumes will decline as they reduce production amid a shortage of crude oil caused by the Middle East conflict.

Prices on the low-sulphur markets were lower than usual, as some of the supply comes from Brazil,?Nigeria and other countries, even though Kuwait's al-Zour refining plant is closed in?the Gulf.

Traders predict that the tighter market will increase future costs of replenishment.

The market is currently dealing with a large buildup of onshore stocks in Singapore, as well as the volumes stored on vessels. However, the stockpiles will be reduced sharply over the next few weeks, according to traders.

(source: Reuters)