• Daily % change in global VLSFO prices down to +/-1.1% in May
• MGO prices declined significantly worldwide last month
• Fujairah prices continued to rise sharply, diverging from other top hubs

In the third month of hostilities in the Middle East, the bunker market saw a significant drop in daily price volatility, a key indicator of profitability for marine fuel traders.

Bunker markets, along with all other fuels, have seen radical shifts in pricing over the past three months since US and Israeli strikes on Iran led to a wider regional conflict. 

But in May, with more conciliatory communications coming from the US side in particular, the market calmed somewhat with no significant escalation or further damage to production facilities. While average prices still rose slightly from April's level, daily volatility declined.

Ship & Bunker's G20-VLSFO Index of prices at 20 leading bunkering ports saw an average daily change of +/-1.1% in May, down from +/-1.5% in April and +/-4.3% in March. In the three months before the recent conflict started at the end of February, the average daily change was +/-0.6%.

Both the US and Iran are now actively working on the possibility of at least a temporary ceasefire allowing for the resumption of traffic through the Strait of Hormuz. While this prospect remains difficult in the immediate term, with a further exchange of strikes at the start of June, it now looks more likely to happen before global oil stockpiles are depleted and more severe price-shocks are seen.

The sharp rise in bunker-price volatility in March will have been a significant source of profits for bunker trading companies, which perform best in circumstances where prices are changing rapidly. If May's price volatility holds for the rest of the year, these companies can expect to see profits normalising to levels closer to those seen before the conflict.

Global Prices

The G20-VLSFO Index averaged $897.50/mt in May, up by just 0.9% from the previous month. Its premium to Brent crude futures stood at 15.7% on average in May, down from a 16.3% premium in April but up from a 1.1% premium in the pre-war six months to the end of February.

The G20-HSFO Index gained 1.7% on the month to $759.50/mt in May. Its average discount to Brent was 2.1%, compared to a discount of 2.4% in April and a 13.1% average discount in the six months to February 28.

That left the G20 scrubber spread - the premium for VLSFO over HSFO for this index - at $138/mt in May, down from $143/mt in April.

The G20-MGO Index sank in May, losing 12.9% to $1,400/mt on average last month. Its May premium to Brent was 80.4%, down sharply from 110% in April but still up from 54.8% in the six months before the war started. Middle distillates were the refined products segment most affected by the Middle East situation, with Middle Eastern refineries, and Asian refineries reliant on Middle Eastern crudes, among the biggest distillate producers globally, and the declining premium to Brent last month is a sign of refineries having some success in maximising distillate output to avoid shortages.

Top Port Breakdown

Image Credit: Ship & Bunker

Among the top ports, Fujairah saw the biggest continued price rises last month, and a clear divergence from the price moves of the other hubs is now visible since the start of May.

Fujairah's VLSFO price jumped by 19.2% to $925/mt in May, while its premium to Brent surged to 19.2% from 2.4% the previous month and from a 6.1% discount in the six months pre-war. HSFO gained 5.7% to $688.50/mt, while MGO lost 3.4% to $1,519.50/mt.

Supply has dropped considerably at the port, with a series of attacks there since March forcing many suppliers to stop offering product, and with many of the port's usual customers that transit the Strait of Hormuz no longer able to continue their voyages.

Singapore's VLSFO price advanced by 6.1% to $823/mt in May, while its premium to Brent rose to 6.1% from 1.5% the previous month and from a 5.1% discount in the six months pre-war. HSFO climbed by 0.2% to $681.50/mt, and MGO sank by 21.1% to $1,188/mt.

Asia is likely to see the biggest supply impact from the Middle East situation in the short run, as its refineries are heavily dependent on Middle Eastern crudes.

Singapore saw initial concerns over potential supply shortages in March, but these concerns have since eased. The port's status as the world's largest bunkering hub makes it likely that it will pull in supply from smaller ports in the region and further afield rather than running dry itself in the event of a prolonged supply shock.

Rotterdam saw higher price increases in May, reflecting shortages caused by the conflict starting to draw in product from regions further away.

Rotterdam's average VLSFO price rose by 8.9% on the month to $925/mt in May, and its average discount to Brent narrowed to 1%, from 7.8% the previous month and an 11% average discount in the six months to the end of February. HSFO advanced by 4.2% to $676/mt, and MGO slipped by 8% to $1,191.50/mt.

Houston was the only one of the top four ports to see average VLSFO price declines last month.

Houston's VLSFO price fell by 2.8% to $834/mt in May, while its premium to Brent narrowed to 7.5% from 12.2% the previous month, compared to a 7.9% discount in the six months pre-war. HSFO rose by 4.2% to $671.50/mt, and MGO lost 4.6% to $1,188/mt.