East of Suez Market Update 21 July

Regional bunker benchmarks have moved in mixed directions, and availability across all grades is tight in Singapore.

IMAGE: Container ship with working crane bridge in shipyard in Singapore. Getty Images

Changes on the day to 17.00 SGT (09.00 GMT) today:

• VLSFO prices up in Singapore ($23/mt), and down in Fujairah ($9/mt) and Zhoushan ($1/mt)
• LSMGO prices unchanged in Fujairah, and down in Zhoushan ($61/mt) and Singapore ($2/mt)
• HSFO prices up in Fujairah ($20/mt), Zhoushan ($6/mt), and down in Singapore ($4/mt)

Singapore's VLSFO price has climbed by $23/mt over the past day, while prices in Fujairah and Zhoushan have declined. Even after the increase, Singapore's VLSFO remains at discounts of $19/mt to Fujairah and $6/mt to Zhoushan.

VLSFO availability in Singapore remains tight, with recommended lead times of 14-19 days, largely unchanged from last week. The tightness persists because Singapore's fuel oil inventories have yet to recover to pre-conflict levels, while cargo arrivals remain constrained by renewed US-Iran hostilities disrupting traffic through the Strait of Hormuz.

According to the Enterprise Singapore data, fuel oil stocks dropped below 18 million bbls in June from more than 23 million bbls in March. Inventories have also remained below 20 million bbls so far this month.

The lower inventory levels have tightened VLSFO supply, lending support to the benchmark price.

HSFO availability also remains tight, with recommended lead times of 9-13 days, compared with 10-12 days a week ago. LSMGO supply has tightened further, with lead times widening to 9-11 days from 6-9 days last week.

In Malaysia's Port Klang, bunker fuel availability remains mixed. VLSFO supply is generally adequate, particularly for smaller prompt stems. However, LSMGO availability remains constrained, while HSFO continues to face supply pressure, keeping both grades relatively tight.

Brent

The front-month ICE Brent contract has gained by $0.56/bbl on the day, to trade at $88.78/bbl at 17.00 SGT (09.00 GMT) today.

Upward pressure:

Yemen’s Iran-backed Houthi militant group has declared a naval blockade on Saudi Arabia, escalating the US-Iran conflict directly to the Red Sea and pushing Brent’s price higher.

Riyadh is highly dependent on the route, transporting about 70% of its crude through the Red Sea port of Yanbu to circumvent the Strait of Hormuz.

“Since disruptions hit the Persian Gulf, the Saudis have increased exports from Yanbu in the Red Sea, shipping around 4.6m b/d [4.6 million b/d] of crude in June, up from around 1.3m b/d [1.3 million b/d] at the start of the year,” two analysts from ING Bank said.

The announcement comes shortly after Iran instructed the Houthis to prepare to close the Bab al-Mandeb Strait connecting the Red Sea to the Gulf of Aden.

“An effective blockade would prevent oil flows to Asia… vessels would have to take the much longer route through the Suez Canal and go around Africa,” ING Bank’s analysts added.

Downward pressure:

Reports about some efforts to ease the situation in the Middle East has put some downward pressure on Brent’s price today.

Mediators ​have proposed a 10-day ceasefire plan to ​de-escalate ​the US-Iran conflict, in a bid ​to ​ ‌revive ⁠the interim deal reached ​in June, ⁠Reuters reported citing a senior Iranian ​official.

The oil market is yet to see a meaningful easing of tensions, ING Bank’s analysts noted. “This won’t be an easy task. Large divisions remain between the US and Iran,” they added.

By Tuhin Roy and Aparupa Mazumder

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