In the aftermath of the UAE and Bahrain's decision to cut diplomatic ties with Qatar, their respective port authorities have issued restrictions on movement of ships to and from the country, which will have implications on crude and oil product loadings in the Middle East and could push up bunker prices elsewhere, Asian shipping industry officials said Tuesday.
One of the world's largest oil importers changed its VLCC loading plans overnight to steer clear of issues arising from the diplomatic impasse between Saudi Arabia, the UAE, Bahrain and Egypt on one side and Qatar on the other.
Vessels flying the Qatar flag or those heading to or arriving from Qatar ports are not allowed to call at Fujairah and Fujairah Offshore Anchorage regardless of their nature of call till further notice, harbor master Tamer Masoud said in an advisory late Monday.
Saudi Arabia has also imposed restrictions and the port authority has asked shipping agents not to receive any vessels with the Qatar flag or owned by Qatari companies.
All ports of Bahrain and its territorial waters will remain suspended for marine navigation from and to Qatar, effective Tuesday, the country's Ministry of Transportation and Telecommunications said in a statement.
This implies that while there will not be a direct point-to-point voyage between Qatari ports and Fujairah and ports of Bahrain, but movement of cargoes can still take place if the vessel calls at a third port.
"Our VLCC was due to load partial cargoes, first in Qatar and then in the UAE and the port agent had given the nod to bring the ship in [to the UAE] but we did not want to take a chance," said a source involved in loading crude on a VLCC on the Persian Gulf-East Asia route.
"We swapped the cargoes at the 11th hour and will instead load the full volume in Qatar itself," the source said. The parcel nominated by the UAE will instead be loaded on another VLCC.
The charter party agreement had explicitly stated "loading in one, two or three safe ports in the Persian Gulf excluding Iran and Iraq" or else the shipowner would have asked for additional freight.
There are no legal issues involved if the loading port is in Qatar because the country has not imposed any counter-restrictions.
Large oil companies have dozens of cargoes loading in the Middle East and therefore have the flexibility to swap parcels but such changes at short notice can often lead to additional expenses.
"Swapping oil cargoes is like a game of chess for the large oil companies," said a VLCC broker in Singapore.
Swapping oil cargoes is like a game of chess for the large oil companies.
However, smaller companies that have only a few cargoes to trade do not have such flexibility to swap parcels and can end up paying higher freight.
"We have parcels to load from Al Shaheen and Ras Tanura later this month in a single VLCC and are currently checking on the legal feasibility of doing so," said a chartering source in Tokyo.
One possibility is to split the cargo and load it on smaller ships such as Suezmaxes and Aframaxes, but no decision has been taken so far, he said.
"If this happens, Aframax volumes and freight on the PG-East route will go up," a broker said.
A VLCC, Suezmax and Aframax typically carries 2 million, 1 million and 600,000-700,000 barrels of crude respectively.
There are dozens of cargoes that are partially loaded in Qatar, Bahrain and Saudi Arabia and shipping executives are hoping that this impasse will be resolved in a week.
"Otherwise it will be a mess," one of the VLCC brokers said.
In the clean tankers' segment, there are hundreds of cargoes that move between ports in the Persian Gulf itself, in what is called a cross-PG voyage.
Fujairah's commercial stocks of refined products were 18.22 million barrels in the week that ended May 29, up 1.7% from the week before, data released last week by the Fujairah Energy Data Committee, or FEDCom, showed.
Calling at Third Ports
While there are only a handful of tankers with the Qatari flag, but by not allowing direct sailing to and fro between Qatar and Fujairah of even vessels that do not carry the Qatari flag has put shipping companies and charterers in a legal quandary.
Ships may transit the port of Khor al Fakkan. It was not immediately known whether the port has issued a similar advisory restricting direct sailing to and from Qatari ports, as it is also part of the UAE.
Khor al Fakkan is hardly 5 miles from Fujairah. In the past, when there have been stringent regulations governing shipping in and out of Fujairah, shipowners and charterers have used the Khor al Fakkan as a conduit for storage, repairs and other miscellaneous shipping works.
"Khor al Fakkan is akin to outside port limits of Fujairah unless an explicit directive from the UAE debars maritime navigation to Qatari ports from there as well," a senior maritime industry executive said.
If that happens, the ships will have to call at the port of a country with which Qatar still enjoys diplomatic relations to avoid a direct voyage between Qatar and Bahrain and the UAE, he said.
Singapore to See Bunkering Gains
Fujairah has been the preferred bunkering port in the Middle East because with its huge storage, it is relatively cheaper compared with other ports.
Fujairah's stocks of heavy distillates and residues totaled 10.08 million barrels as of May 29, rebounding by 11% week on week, FEDCom data showed.
These stocks can pile up due to port restrictions on Qatar-related voyages. Fujairah has about 41.5 million barrels of commercial oil product land storage available for lease, according to Platts Analytics estimates.
"Bunkering is a major source of revenue for the UAE and by not allowing ships embarking from Qatar or planning to go there to come to Fujariah will hurt its hub status," said another VLCC broker in Singapore.
One view is that shipowners can now ask for higher freight if the vessel calls at Qatari ports.
"If not allowed to dock at Fujairah, these ships will have to load bunker fuel in Singapore," said a clean oil tankers broker.
This in turn can push up the bunker prices in Singapore. The 380 CST grade bunker fuel was assessed at $305.50/mt and $306.50/mt delivered in Singapore and Fujairah respectively on Monday, according to the S&P Global Platts data. The corresponding price in Khor Fakkan was also $306.50/mt, the data showed.