A recent resurgence in Iranian maritime strikes on commercial shipping transiting the strait of Hormuz threatens to destabilise regional trade lanes once again, putting recent product export gains at risk.
Product flows through the strait over 1-12 October were at 1.33mn b/d, according to data from trade analytics firm Vortexa, including shipments of LPG, lube oils and other products.
Exports of refined oil products through the route trended higher in September, reaching around 2mn b/d — their highest since the outbreak of regional hostilities.
A relative lull in Iranian attacks during September allowed major regional producers — including Saudi Arabia, Iraq, Kuwait, and the UAE's Gulf coast ports — to step up export volumes.
Outflows were above 4.8mn b/d in February before the war started, but plunged to an average of 635,000 b/d over March-May. Shipments gradually recovered to 1.3mn b/d in June following the signing of a memorandum of understanding (MoU) between the US and Iran.
But attacks on commercial vessels have increased in number since the end of September, with Iran expanding its strikes beyond the strait into the Mideast Gulf and Gulf of Oman.
Total export potential remains limited by extensive damage inflicted on regional refining infrastructure during earlier, intense stages of the conflict. Refiners are still undertaking repair work to restore damaged processing units to full operational capacity.
Product flows are further constrained by a shortage of vessels willing or available to lift cargoes. In peaceful times, buyers typically sent their own or chartered ships to collect cargoes on an fob basis, but many are now reluctant to expose their vessels to the risks of entering the Gulf.
This means the burden is shifted onto sellers, who must either export using their own ships or carry cargoes to ship-to-ship transfer points off the UAE or Oman. With national oil companies and refinery operators lacking sufficient product tanker capacity of their own, fewer product cargoes can be moved out of the region. Besides, long-range 2 vessels (LR2) — typically used for carrying up to 75,000t of naphtha — are frequently pulled into crude transportation.
In the region's main storage and bunkering hub Fujairah, in the UAE, located outside the strait, inventories built up steadily through September, bolstered by increased coastal arrivals from within the Mideast Gulf as well as arbitrage cargoes from external suppliers. Despite higher stock levels, local bunker suppliers report that marine fuel demand remains persistently weak. Shipowners and charterers continue to minimise dwell times during loading and discharge operations, opting to lift bunker fuels in locations outside the area.
Bunkering activity in Fujairah is further deterred by high prices compared with rival Asian hubs. Spot prices for main bunker product 0.5pc sulphur fuel oil (VLSFO) in Fujairah continue to command premiums of $80-100/t over Singapore, while high Additional War Risk Premiums (AWRP) deter vessels from the region.
