Fujairah's HSFO bunker premiums falter amid ample stocks, stiff competition

The high sulfur fuel oil bunker premiums at the UAE's bunker hub of Fujairah plunged to a nine-month low Aug. 22 as ample HSFO stockpiles outpaced moderate downstream demand, while tough competition among players limited any upside potential for the bunker premiums, traders said Aug. 23.

The Platts Fujairah-delivered 380 CST high sulfur fuel oil bunker premium over the FO 380 CST 3.5% FOB Arab Gulf cargo values slipped $2.47/mt day on day to a nine-month low of $2.04/mt Aug. 22, and was last assessed lower at a discount of minus 55 cents/mt Nov. 23, 2022, according to data by S&P Global Commodity Insights.

Fujairah remains well-stocked with HSFO while players are keen to move cargoes, with no tightness expected in the near term despite supposedly higher demand from the regional utility sectors for power generation during the summer season, traders said.

Two replenishment cargoes comprising 1.17 million barrels, or 184,601 mt, of HSFO hailing from Iran landed in Fujairah during Aug. 20-21, according to data by Kpler.

These follow the previous two shipments totaling 1.05 million barrels, or 165,469 mt, of HSFO sourced from the same origin recently discharged around Fujairah port on Aug. 17-18, Kpler data showed.

Meanwhile, at least three of Fujairah's licensed bunker suppliers were seen reportedly offering "very aggressively", amid efforts to capture more HSFO inquiries than others, a Fujairah-based bunker supplier said.

Around the nearby port of Khor Fakkan and outside port limits where HSFO cargoes from other origins are readily available, traders also attributed the wider variety of cargo origins to "lesser oversight".

A 661,386-barrel, or 104,155 mt, of HSFO sourced from the Russian port of Ust Luga is scheduled to arrive around the UAE on Aug. 23, Kpler data also showed.

Delivered margin crunch

Competitive offers in the delivered market at Fujairah and Khor Fakkan ports meant that HSFO has been a less profitable business for some players, as suppliers struggle to breakeven, according to bunker suppliers.

"All year [since 2023], most physical HSFO suppliers are selling below cost, factoring in costs of ex-wharf [procurements] and operational expenditures," a Fujairah-based trader said Aug. 23.

Spreads between the HSFO delivered and ex-wharf grades at Fujairah, or known as the barging spread, should ideally range around $5-$9/mt for most bunker suppliers to at least breakeven and offset operational costs, according to local suppliers.

In cases where barges were chartered at higher rates, barging costs were also estimated to range between $8-$10/mt at Fujairah, suppliers added.

At Fujairah, the term contractual ex-wharf 380 CST HSFO barrels were concluded between discounts of $2/mt and premiums of $3/mt to Mean of Platts Arab Gulf 180 CST HSFO assessments for August's supply, local traders said, below contracts previously done between flat and around $3/mt premiums for July-loading dates.

On the other hand, the Platts Fujairah-delivered 380 CST high sulfur fuel oil bunker premium over the FO 380 CST 3.5% FOB Arab Gulf cargo values slipped to average only $4.74/mt Aug. 1-22, compared with $10.05/mt across July, S&P Global data showed.

Based on early sales estimates so far in August, some market participants polled by S&P Global are skeptical if HSFO sales could outperform July's volumes, citing some degree of "volatility" in demand across months.

Fujairah's HSFO sales jumped 37% on the month in July to 174,227 cu m, a record high for the data starting in 2021, according to the data available from the Fujairah Oil Industry Zone and shared with S&P Global.

Stocks of heavy distillates at Fujairah, used as fuel oil for power generation and shipping, jumped 6.8% over the week to 9.295 million barrels in the week ended Aug. 21, the latest data by FOIZ showed.