Fujairah's LSFO bunker premiums hit near 13-month low amid weak demand, supply overhang

Bumpy demand for low sulfur fuel oil around the Middle Eastern bunker hub of Fujairah has progressively pressured downstream premiums as suppliers struggle to draw down elevated stockpiles, dampening optimism for a stronger outlook in December, trade sources said Nov. 21.

The Platts-assessed Fujairah-delivered marine fuel 0.5% sulfur bunker premium over the Singapore benchmark stood at a near 13-month low of $4/mt on Nov. 20, down $8.31/mt from Nov. 19, and was last assessed lower at $3.72/mt on Oct. 24, 2023, S&P Global Commodity Insights data showed.

Fujairah's LSFO bunker premiums have averaged $8/mt since the start of November, softening from $11.08/mt in October, the data showed.

"LSFO demand is wafer thin; flows [in November] have been slower than October," a Fujairah-based bunker supplier said, as sellers aggressively offered to capture the very limited inquiries.

Suppliers in the downstream market were also seen offering competitively, even for very prompt stems, to fill LSFO barging slots with short lead times, as overall barging schedules were largely adequate to meet early buyer requirements, according to bunker suppliers.

"There is too little demand and too much oil ... The outlook for December seems increasingly bleak," a trader said, but cited some optimism for the month if one of the region's refineries enters planned maintenance and caps stockbuilds.

Traders partly attributed the lackluster downstream LSFO demand to reduced voyages through the region, with compounded Red Sea and Iran-Israel geopolitical tensions pushing up additional war risk premiums and keeping freight rates elevated, alongside shifts in trade patterns.

Escalations in Red Sea tensions and incidents have also reportedly led to more ships detouring around the Cape of Good Hope in recent months.

In the face of stiff competition in the LSFO segment, some of Fujairah's sellers chose to retract their offers and stay out of the market, another trader said.

Supply overhang

Traders cited no shortage of options for buyers, given the ample bunker barges plying the region, while sellers hurried to move LSFO cargoes and draw down stockpiles, capping overall downstream premiums.

"Considering the backwardation through next month, players aren't keen to keep a lot of stock into the forward month either," a third trader said.

Two replenishment LSFO cargoes, totaling around 320,000 mt and reportedly sourced from Kuwait, arrived in Fujairah in the first half of November, according to industry sources.

In Kuwait, domestic LSFO consumption levels would have declined as the peak summer season gradually passed, possibly leaving more product for export for the rest of this year, traders said.

Stockpiles of heavy distillates at the UAE's Port of Fujairah -- the world's third-largest bunkering hub -- rose 5.2% on the week to an over two-month high of 9.147 million barrels in the week ended Nov. 18, the latest Fujairah Oil Industry Zone data showed.

Bunker fuel sales in Fujairah were up 3.1% month over month in October but were down 3% year over year at 639,116 cu m, while LSFO sales rose 1.9% month over month and 3.6% year over year to 403,915 cu m, the data showed.