Sources tell Ship & Bunker that they are urging customers to float their bunker enquiries as soon as possible. Image Credit: MPA

• Arrange stems early, buyers told
• Lead times being quoted in weeks not days
• Avails tightening due to reduced oil flows into Asia's key bunker markets
• Severe oil price volatility sees premium for VLSFO in Singapore Monday anywhere between 30% and 100%. 

Physical bunker suppliers and trading firms across Asia are urging buyers to secure stems well ahead of delivery dates as escalating conflict in the Middle East begins to pressure regional crude and fuel oil supply chains.

Premiums have surged after the US and Israel commenced strikes on Iran on February 28, with Tehran subsequently launching retaliatory attacks across the region targeting US bases and oil infrastructure.

The war has caused severe disruption to oil flows from the key region, which as Ship & Bunker reported Friday, has led to to concerns over product availability in a number of Asia's key markets. 

This, coupled with a crude price Monday that at times threatened to touch $120/bbl as well as sink into the $80's, meant depending on at what point in the day you asked the premium for VLSFO over Brent in Singapore was anywhere between 30% and 100%.

Singapore and Regional Ports See Tightening Availability

Major bunker hubs, including Singapore, the world's largest marine fuel port, as well as Hong Kong and several South Korean ports, are all seeing availability gradually tighten.

LSMGO supply in Singapore is reported to be particularly tight, with roughly half of the suppliers that normally offer the grade currently unable to do so, sources have told Ship & Bunker.

Availability of VLSFO and HSFO remains somewhat better than LSMGO, but traders say forward planning is becoming increasingly important as market volatility grows.

“We recommend all of our customers to float any inquiries they may have as soon as possible, to give ample time to secure product availability,” a source said.

“I would recommend lead times of at least over 10 days in Singapore, considering how volatile the market has become,” another trader told Ship & Bunker on Monday.

Others were advising lead times of around 10-15 days for VLSFO and HSFO, while LSMGO may require between 12 and 22 days.

Similar market dynamics are also being reported Elsewhere in Asia.

“All grades are tight, especially LSMGO, premium has shot over the roof, a Hong Kong-based trader told Ship & Bunker on Monday.

Prompt supply is difficult to secure at the moment in Hong Kong, another trader said.

For South Korean ports, a local source told Ship & Bunker: “Lead times were generally over seven days before the war broke out, so you can now expect it to be even longer,”.

Spot Demand Higher Than Normal in Singapore

Despite the tightening market, Singapore’s residual fuel oil inventories are not yet showing signs of immediate shortage, but traders warn the situation could tighten quickly if imports fall.

“Spot demand is significantly higher than normal,” a trader told Ship & Bunker.

“Its to be seen how long existing stocks will be sufficient.”

It also remains to be seen whether buyers will start securing additional fuel in anticipation of further disruption, which could rapidly accelerate stock drawdowns.

Middle East Impact on Fuel Oil Flows to Singapore

Iran’s claimed closure of the Strait of Hormuz, a key route for roughly 20% of global crude and fuel shipments, along with vessel attacks, has already disrupted Middle East crude and fuel oil flows to markets such as Singapore.

“Singapore fuel oil imports will be affected by the current US-Iran conflict for a couple of reasons,” Xavier Tang, senior market analyst at energy cargo tracker Vortexa, told Ship & Bunker on Monday, when asked about the growing concerns over fuel oil flows to Singapore.

“As tanker traffic through the Straits of Hormuz has fallen sharply over the past week, both high-sulphur fuel oil and low-sulphur fuel oil supplies from the Middle East have been curtailed, with over 80% of the fuel oil supplies being high-sulphur.

"Shortage of medium/heavy-crude supplies from the region will reduce fuel oil output from refineries.

“This has led to strong backwardation in both HSFO and VLSFO grades across regional bunkering hubs and could narrow the scrubber spread (VLSFO-HSFO).

“Although Singapore has imported significant volumes of fuel oil from Fujairah in the past, attacks on Fujairah oil storage could limit fuel oil outflows from the port.”

Ship & Bunker reported earlier that Fujairah oil storage was hit by another attack on Sunday, leading to the suspension of bunker barge loading at the port.

Descpite the disruption, local sources otherwise reported good avails in the key port.

“One alternative is to blend heavy sweet crude or biofuels into the fuel oil pool; however, that would depend heavily on blending margins,” Tang concluded.