SINGAPORE: Middle Eastern fuel oil exports are set to rebound to a four-month high in June as Iraq and Saudi Arabia diverted supply to other ports while shipments through the Strait of Hormuz are set to pick up, according to trade sources and shipping data.
Supply from the region could rise further as more cargoes gradually exit the strait after the U.S. and Iran reached an interim deal to end their conflict, sending high-sulphur fuel oil prices tumbling at key trading hubs like Singapore.
Middle East exports are set to hit about 2.4 million metric tons (508,000 barrels per day) this month, up over 20% from May, data from Kpler and LSEG showed. However, this remains well below a monthly average of 5.5 million to 6.0 million tons before the war.
"Fuel oil flows through the Strait of Hormuz are expected to increase over the next 60 days, but the recovery is unlikely to be substantial," said Palash Jain, Middle East oil consultant at FGE NexantECA.
Uncertainty over the outcome of negotiations and the durability of the peace deal is expected to keep shippers cautious, Jain added.
Late on Wednesday, Aframax tanker Gamsunoro, carrying about 80,000 tons of fuel oil loaded in Iraq, exited the strait and headed for Fujairah, shipping data on LSEG showed.
Other factors that could cap exports include tight regional balances, limited scope for a sharp increase in refinery runs and upcoming peak summer demand, Jain said.
HSFO is used in powering ships, generating electricity and also processed at refineries.
IRAQ, SAUDI ARABIA DIVERT EXPORTS, OMAN RAMPS UP VOLUME
The top three Middle Eastern HSFO exporters in June were Syria, Saudi Arabia and Oman, shipping data showed. Before the war, top exporters were Iraq, Kuwait, Iran, and the United Arab Emirates.
Iraq started exporting fuel oil from Syria's Baniyas port for the first time in March, with volumes hitting a record high of over 600,000 tons in June.
"Iraq remains focused on diversifying export routes, with the Syrian corridor serving as a strategic alternative to Hormuz," said FGE's Jain.
Before the Iran war, Iraq mainly exported its fuel oil from the Khor al-Zubair port. The work-around saw millions of barrels of Iraqi fuel oil trucked across Syria to Baniyas, before being re-exported.
Separately, Saudi Arabia is set to export over 300,000 tons of fuel oil in June, a five-month high, from the Red Sea port of Yanbu where it has diverted supplies.
Fuel oil exports from Oman are also set to reach nearly 300,000 tons for June, the highest in more than two years.
Meanwhile, trading sources expect Iranian fuel oil trade to remain capped despite the interim peace deal's 60-day U.S. sanction waiver, as they expect banking and payments to remain a key hurdle. - Reuters
