One month into the Middle East conflict spreading from strikes on Iran, the impact of ensuing supply disruption on bunker prices around the world is starting to become more clear.

The US and Israel launched a series of strikes on Iran at the end of February, prompting Iranian forces to respond with strikes on other countries in the region and to attempt to halt maritime traffic through the Strait of Hormuz.

For bunker markets, the immediate effect has been a rapid repricing, with weak margins seen at the start of this year replaced by historic premiums to crude. Supply remains adequate for now at major ports, albeit with longer-than-usual waiting times for spot deliveries - and prices remain considerably below the record highs seen in 2022 after Russia's full invasion of Ukraine - but significant variations can be seen in the price jumps generated at ports in different regions.

Global Prices

Ship & Bunker's G20-VLSFO Index of prices at 20 leading bunkering locations averaged $898/mt in March, up by 65.2% from the previous month. Its premium to Brent crude futures stood at 23.9% on average in March, up from a 1.6% discount in February.

The G20-HSFO Index gained 70.3% on the month to $768/mt in March. Its average premium to Brent was 6%, up from a discount of 14.6% in February.

That left the G20 scrubber spread - the premium for VLSFO over HSFO for this index - at $126.50/mt in March, up from $70/mt in February.

The G20-MGO Index gained 77.8% to $1.386/mt in March. Its premium to Brent was 91.3% last month, up from 48.2% in February. Middle distillates have been 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.

Top Port Breakdown

In the first days of the current disruption, the upward price moves were generally fairly uniform across the major ports, but significant differences began to emerge in the following weeks.

Fujairah has generally seen the biggest price gains of the top ports, with an 87.6% rise in VLSFO last month from February's levels, 81.1% in HSFO and 98.6% for MGO. Supply has dropped to a near-standstill at the port, with a series of attacks there over the past month 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 has seen the second-biggest price gains for March versus February, at 85.6% for VLSFO, 74.3% for HSFO and 136.8% for MGO. 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. 

While supply is tightening in Singapore, product availability generally remains sufficient for now. 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 and Houston generally saw much smaller price gains, reflecting lesser importance of Middle Eastern crudes to the refineries that supply these markets, although this is likely to be a short-term benefit if the situation continues.

Rotterdam saw gains on the month of 58.1% for VLSFO, 66.6% for HSFO and 69.9% for MGO, while Houston's advances were 59.4%, 64.7% and 74.4% respectively.

It should be noted that the ports that have seen more muted price responses so far are unlikely to be able to hold on to this advantage indefinitely, in the event of a prolonged closure of the Strait of Hormuz. Relative advantages will erode as product is drawn towards hubs where demand can remain highest despite elevated prices, meaning wide spreads between ports will tend to narrow over time.

This effect can already be seen at Singapore and Fujairah, where significant premiums to Rotterdam and Houston have already narrowed significantly over the past two weeks.