Very-low-sulphur fuel oil (VLSFO) bunker premiums have surged this week in the UAE port of Fujairah as local producers grapple with an acute shortage of low-sulphur feedstock and blend components, and imports of bunker-grade fuel are cut off because of the ongoing US-Iran conflict.
The Argus-assessed delivered bunker premium, priced against the Singapore VLSFO cargo price, rose to more than $50/t on 21 April, after averaging $15/t in the previous week.
The conflict has almost completely severed the flow of all products imports from Mideast Gulf refineries because of separate blockades in the strait of Hormuz by Iran and the US, including from key VLSFO source, Kuwait's 615,000 b/d al-Zour refinery. Marlin Santorini, carrying 110,000t of VLSFO loaded from al-Zour, has been trapped in the Mideast Gulf since 28 February.
The shortfall is being compounded by a broader inability to secure sufficient low-sulphur residual feedstock to sustain local production levels.
Local producers, including trading firm Vitol's 100,000 b/d Fujairah refinery, previously sought low-sulphur residuals from as far as Brazil, to backfill the loss of Dar Blend crude — a medium sweet grade from South Sudan — following the UAE's decision to sever ties with Sudan last year.
But with security threats and high war-risk insurance premiums keeping shipping companies away from the region, VLSFO supplies in Fujairah, the world's fourth-largest bunkering hub, have been running out, local traders said. Regular bunker customers have been refuelling elsewhere, and until now Fujairah suppliers have been able to cope with the diminished demand.
"The fuel in storage tanks has been emptied into barges because of the security fears," a trader said. "And suppliers have been selling whatever was left on their barges since early March."
A major supplier had just around 500t of VLSFO left on a barge, and others reported low or no spot availability. As barge stocks are dwindling and resupply options remain very limited, market participants expect the bullish sentiment to persist in the near term.
