Red Sea, Suez Canal thaw to benefit oil deliveries to Singapore, may impact bunker demand

A reopening of normal shipping across the Red Sea will benefit oil deliveries to Singapore and reduce premiums for Red Sea loadings, which are currently abnormally high, market participants said Jan. 27, adding that the move may possibly adversely impact bunker demand in the regional hub.

If the movement in the Red Sea to the east were to smoothen, it would make gasoline shipments from the Red Sea to Singapore much cheaper, market participants said.

This is an important route because almost all cargoes moving from Jazan, Yanbu and Rabigh to the Persian Gulf have a Singapore discharge option, with between one and five MR cargoes delivered to the city port every month, according to a trader tracking such deals.

"We are not seeing any evidence of lower Red Sea loading premiums yet, as owners may first monitor the situation closely, which will require time," a clean tankers' broker in the UK said.

With the commencement of the Israel-Hamas ceasefire deal Jan. 19, the Iran-backed Houthi rebels pledged to cease attacking ships passing through the Red Sea, except for those flagged in Israel or wholly owned by Israeli companies or individuals.

Oil transits through the Bab al-Mandab Strait at the southern end of the Red Sea fell to 2.5 million b/d in 2024 from 6.9 million b/d in 2023, while those via the Suez Canal, which connects the Red Sea and the Mediterranean, dropped to 3.9 million b/d from 7.9 million b/d, according to S&P Global Commodities and Sea.

LNG ship transit via the Red Sea and the Suez Canal has been halted for over a year due to increased attacks on merchant ships.

Singapore as a hub

The Maritime and Port Authority of Singapore is monitoring the situation in the Red Sea and its implications, and, along with its partners, is ready to facilitate cargo movements, it said in response to S&P Global Commodity Insights' query Jan. 27.

Singapore -- the world's largest bunker hub -- saw record bunker sales of 54.92 million mt in 2024, boosted by Red Sea disruptions that resulted in longer voyages via the Cape of Good Hope, the MPA said earlier this month.

According to traders, maintaining such record-high sales will be a challenge if the situation in the Red Sea returns to normal and shorter voyages via the Suez Canal become more frequent, although this has not happened so far.

Singapore's container throughput also reached a new record of 41.12 million twenty-foot equivalent units, or TEUs, in 2024, after addressing port congestion caused by reroutes away from the Red Sea in mid-2024, which resulted in off-schedule arrivals and bunching at ports.

Container shipping lines typically use Singapore as a transshipment port to unload cargo bound for Asian ports beyond Singapore before returning to Europe to maximize efficiency.

In July, about 90% of container ships arrived off-schedule in Singapore due to reroutes away from the Red Sea, compared with about 77% in 2023, Singapore Transport Minister Chee Hong Tat said in a written reply to Parliament at the time.

Sporadic movement

According to a marine underwriter, the additional war risk premium, or AWRP, for each MR tanker crossing the Bab al-Mandab Strait is around $150,000, although it varies based on the age and size of the tanker.

"It is this cost that will be shaved off the delivered price, or at least decline, if the Red Sea situation improves," the underwriter said.

It is not only about AWRP but also freight, which for the Red Sea-Singapore MR route is currently at a massive premium of w220 over the Persian Gulf-Singapore route, according to Commodity Insights data. The corresponding premium for LR tankers on this route, occasionally used to move naphtha, is w80, the data showed.

The movement of tankers through the Suez Canal remains sporadic.

Sources from two major oil tanker operators told Commodity Insights on Jan. 24 that their companies would not move cargoes through the Suez Canal for the time being, with one of them saying that approval from insurers is also needed before a decision can be made.

An executive from a third such company -- one of the largest by the number of tankers operated -- said Jan. 27, "We will not move our ships through the Red Sea; there is no clear timeline for it. It will take more time than people think."