Image Credit: Ship & Bunker

• VLSFO and HSFO premiums to Brent mostly declined in April
• MGO premiums generally still widening
• Houston sees biggest price gains of top four ports in April

After a second month of hostilities in the Middle East, the bunker market now appears to be showing a calmer outlook on how the conflict may affect supply.

US and Israeli strikes on Iran at the end of February, and Iran's attacks on targets across the region and closure of the Strait of Hormuz in response, prompted a rapid repricing of bunker markets around the world in March.

Bunker prices shot up at all ports, and premiums to crude futures widened significantly.

While prices remain near multi-year highs, bunker price data from April show a notable cooling of the market as it adjusts to new supply constraints. The prospect of supply problems if the war continues to drag on has not gone away, but some of the immediate pressure has dissipated.

Ira Birns, CEO of US-listed fuel supplier World Fuel, noted the diminishing price impact in a call with analysts on April 23.

"It's still above where it was," Birns said.

"When these conflicts happen, the craziness is always most severe at the very beginning, if you combine price and volatility and uncertainty, so there's still some of that.

"It's not the same degree that it was the first couple of weeks in March, but obviously there's still volatility in the market that's greater than it was in February."

In an interview with Ship & Bunker at the end of March, outgoing IBIA Chairman Constantinos Capetanakis warned of 'serious profiteering' by bunker sellers in response to the disrupted market, to a degree that was not necessarily justified by actual supply conditions in the market.

"It's much more expensive - we're talking about serious profiteering here - but there is no supply tightness in the sense that one cannot get it if you have the money to buy it," Capetanakis said.

"The herd mentality has taken centre stage. There is a lot of profiteering."

Global Prices

Ship & Bunker's G20-VLSFO Index of prices at 20 leading bunkering locations averaged $890/mt in April, down by 2.4% from the previous month. Its premium to Brent crude futures stood at 16.3% on average in April, down from a 24.7% premium in March but up from a 1.1% premium in the pre-war six months to the end of February.

The G20-HSFO Index lost 4.4% on the month to $746.50/mt in April. Its average discount to Brent was 2.4%, down from a premium of 6.9% in March but still up from 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 $143/mt in April, up from $130/mt in March.

The G20-MGO Index continued to climb in April, gaining 13.7% to $1,606/mt on average last month. Its April premium to Brent was 110%, up from 93.3% in March and from 54.8% in the six months before the war started. 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 month of the Middle East conflict, Fujairah and Singapore saw the biggest price gains of the top bunkering locations, and now these two have seen the biggest average declines in April.

Fujairah's VLSFO price sank by 14.1% to $783/mt in April, while its premium to Brent sank to 2.4% from 24.6% the previous month and from a 6.1% discount in the six months pre-war. HSFO lost 13.8% to $651/mt, while MGO rose by 4.7% to $1,573/mt.

Supply has dropped considerably at the port, with a series of attacks there in 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 declined by 15.6% to $776/mt in April, while its premium to Brent fell to 1.5% from 25.9% the previous month and from a 5.1% discount in the six months pre-war. HSFO fell by 10.9% to $680.50/mt, and MGO sank by 7.3% to $1,506.50/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 and Houston saw much lesser price impacts in March, reflecting their greater disconnect from the Middle East markets, but these ports started to catch up in April as supply constraints became more globalised.

Rotterdam's average VLSFO price lost 3.2% on the month to $705/mt in April, and its average discount to Brent widened to 7.8%, from 0.4% the previous month but compared to a 11% average discount in the six months to the end of February. HSFO declined by 5.1% to $649/mt, and MGO climbed by 9.5% to $1,295/mt.

Houston's VLSFO price jumped by 14% to $858/mt in April, while its premium to Brent widened to 12.2% from 3% the previous month and from a 7.9% discount in the six months pre-war. HSFO rose by 6.4% to $644.50/mt, and MGO gained 5.8% to $1,246/mt.

US Gulf oil exports have increased significantly since the start of the war as refineries seek alternatives to Middle Eastern crude, and demand at Houston from tankers has jumped as a result.