Fujairah hub sees stiffening competition as Middle East bunker market evolves

A gradually evolving downstream market around the Middle East with more refueling options might pose challenges in the longer term at the UAE's bunker hub Fujairah, market participants said, adding that the rising competition among domestic players is chipping away Fujairah's status as bunker hub.

The emergence of alternative refueling options at strategic locations around the Middle East and a recent growth in bunkering activity outside port limits off the coast of Fujairah could pose further downward pressure on Fujairah's market, traders said, while macroeconomic headwinds also dented bunker demand.

"Since February onward, LSFO bunker demand has slowed... It has gone down around an average of 5%-10% on a monthly basis over the past few months. Global macroeconomic slowdown also played a part," a Fujairah-based bunker supplier said, whereas stockpiles remained largely ample throughout.

Fujairah's bunker sales totaled 3.617 million cu m in the first six months of 2023, 10.5% down from January-June 2022 and 9% below the same period in 2021, according to latest data from the Fujairah Oil Industry Zone and S&P Global Commodity Insights.

In addition, Fujairah's 2022 bunker sales volumes slipped 1.5% from 2021 to reach 8.109 million cu m, FOIZ data showed. FOIZ began providing S&P Global the bunker sales data since 2021.

For instance, Minerva Bunkering and Aramco Trading have begun collaborations since end 2021 to refuel vessels around Saudi Arabia's Yanbu port, S&P Global reported earlier.

"Yanbu and Jeddah have a history of bunker supply, but more time is needed to prove themselves as a serious contender. Oman's bunkering operations are still in developmental stages and might be more active in the longer term," a Fujairah-based trader said.

One of Fujairah's licensed bunker suppliers have reportedly relocated a barge to Saudi Arabia's port of Yanbu for bunker supply, market sources said.

Regional tensions with Qatar have also dislodged a "huge segment" of Fujairah's bunker demand which has yet to be fully amended for, the trader Fujairah-based said.

"Oman's bunker market is poised for steady growth in the long term, with strategies already in place to develop infrastructures, such as storage and barges, and could reportedly sell up to around 20,000 mt of bunker fuels under healthy demand conditions," a second UAE-based trader said.

"Regional competition in the Middle East will definitely, and eventually, become a [key] factor. A credible bunker station requires many other infrastructures to be developed, and that consumes time, investments and commitments," the first trader added.

Domestic competition intense

According to market participants polled by S&P Global, suppliers stationed at the nearby Sharjah port of Khor Fakkan are probably the biggest contender of Fujairah's demand, alongside the regional competition within the Middle East.

As traders noted the "regulatory oversight" around Khor Fakkan is seen less stringent compared with Fujairah hub, this meant that fuel oil cargoes of sanctioned origins are more likely to find its way into floating storages situated along these neighboring ports.

Thus, rather than attempting to obtain bunkering licenses to provide supply at Fujairah port, some players prefer to set up refueling options at Khor Fakkan instead, aiming to divert bunker demand from Fujairah, traders added.

"Though some shipowners are concerned about origins of fuel oil cargoes in the Middle East, movements in OPL [outside port limits] is increasing and it's where cheaper bunker [fuels] are available," a second bunker supplier said July 21. "The market is now more complicated than before and keeps demand [in Fujairah] very low."

The Platts Fujairah-delivered 380 CST HSFO bunker premium over the FO 380 CST 3.5% FOB Arab Gulf cargo assessments fell to average at $7.64/mt July 3-20, less than one-third of the $23.35/mt across June, and below the $31.85/mt in May, S&P Global data showed.

"Some traders are selling aggressively; they are even accepting low bids [from buyers]. They are capturing almost all the inquiries. We aren't able to follow through on the competitive pricing," a third Fujairah-based bunker supplier said July 21. "On HSFO, some [delivered] players are increasing term contractual volumes, lessening spot trades."

"There are some suppliers which also operate barges switching between Fujairah and Khor Fakkan too," the first bunker supplier said.

Al-Zour refinery, totaling 615,000 b/d capacity across three crude distillation units, recently started its third and final CDU 3, with plans to "reach full capacity" before the end of 2023, S&P Global recently reported quoting a spokesperson for Kuwait Integrated Petroleum Industries July 6.

The likelihood of future LSFO imports to pressure the already-adequate inventories could further depress sentiments in Fujairah's downstream market, traders said.

Platts assessed the Fujairah-delivered marine fuel 0.5%S bunker premiums over the benchmark FOB Singapore Marine Fuel 0.5%S cargo values to average $7.52/mt across Q2, more than halved from the $16.17/mt in Q1 and slipping to $3.84/mt so far in Q3 through July 20, according to S&P Global data.