Home Top News Fujairah bunkers 2023 demand outlook steady amid expansion plans, OPEC output cuts

Fujairah bunkers 2023 demand outlook steady amid expansion plans, OPEC output cuts

Source: S&P Global Commodity Insights

The UAE’s Port of Fujairah, the world’s third-largest bunkering hub, is heading for a downturn in ship fuel sales this year and the outlook for 2023 isn’t much better, with the biggest proportion of respondents in an S&P Global Commodity Insights survey expecting little change as expansion projects could boost demand while OPEC production cuts curb usage.

Sales this year through November are down 1.6% from the same period last year, according to the latest Fujairah Oil Industry Zone data. Volume next year will be little changed, four out of 10 analysts, traders and brokers said in the survey. Three said volumes would be down and three saw them higher.

The year will start with Uniper Energy DMCC’s refinery set for maintenance, with one unit in January and the next in February, cutting production by 30%-40% each month, a company source told S&P Global Nov. 17. The refinery has capacity of 80,000 b/d, including shipping fuel. The works could last at least 14 days, and perhaps three weeks, each month. “This will be a bane for demand as delivered LSFO premiums could be elevated with limited product availability for the downstream market too,” one respondent said.

Crude production cuts are also expected to weigh on the Fujairah hub, with the OPEC+ alliance implementing a 2 million b/d reduction of quotas in November to counter economic headwinds, with the cuts scheduled to run through 2023. November bunker sales dropped 2.9% on the month as fewer ships called at the port amid high freight rates, sources said. The freight cost to move dirty oil from the Persian Gulf to Singapore on Aframax vessels jumped to a record $42.31/mt Nov. 28, up 34% from the end of October, according to assessments by Platts, part of S&P Global. A new record of $43.34/mt was set Dec. 22.

On the plus side, port expansions set to be completed in 2023 will help boost bunker sales, some respondents said. A presentation by the port in October listed projects for 2023 as including a new dry bulk export terminal with initial 18 million mt capacity, Etihad Rail connecting Fujairah with Abu Dhabi and Dubai, ADNOC’s 42-million-barrel underground crude storage and Fujairah Oil Terminal’s VLCC connection.

The Etihad rail connection will increase container traffic at AD Port Group’s Fujairah Terminal, boosting bunker demand, while the opening of the Al-Zour refinery in Kuwait recently will increase bunker demand as higher supply of LSFO reduce the product’s prices, one survey participant said.

Product from Kuwait is expected to be shipped to Fujairah refineries for blending, boosting bunker demand as more supplies are available for export, the participant said. Kuwait’s 615,000 b/d refinery has made its first sales of LSFO, jet fuel and naphtha in recent weeks. The refinery will also increase demand for storage at Fujairah, analysts said. More product from Russia since its invasion of Ukraine in February helped boost Fujairah oil product inventories to a two-year high on Nov. 7, according to data compiled by S&P Global.

”The commercial startup of Al Zour will indeed pose competition to the refineries in the region, but Fujairah is more of a bunkering port, storage hub and distribution center, so Al Zour could benefit Fujairah because it adds to the liquidity of major oil products, especially fuel oil, in the region,” said Dong Wang, analyst, Middle East oil markets at S&P Global. Fujairah has storage capacity for about 45 million barrels of oil products and 23 million barrels of crude oil.

“LSFO product from Al-Zour refineries could be a good source if cargoes flow to Fujairah,” a survey participant said. “However, the oil majors are more likely to ship these cargoes to Singapore, considering the better premium it could give. In times of shortages at Fujairah, it is however still a viable source of LSFO to keep the local market well-supplied.”

Fujairah’s delivered marine fuel with 0.5% sulfur bunker prices has risen to a premium of $3.88/mt since 2022 to date against the same delivered grade at the world’s largest bunker hub of Singapore, flipping from a discount of $3/mt across 2021, according to S&P Global data.

The port on the UAE’s East Coast is outside the Strait of Hormuz, the entrance to the Persian Gulf where there have been ship attacks. But on Nov. 15, Eastern Pacific Shipping Pte said one of its oil product tankers, the Pacific Zircon, was hit about 150 miles off the coast of Oman. Excluding Libya, the latest update of S&P Global’s Energy Security Sentinel report showed incidents in the Middle East — a traditional hot spot for geopolitical risk linked to oil and gas production — had fallen sharply since the first quarter of 2022.

“Fujairah’s bunker market is heavily dependent on tramp shipping (vessels available at short notice) with tankers and bulk carriers crossing inbound and outbound the Strait of Hormuz,” a survey respondent said. “Hence, we also cannot rule out some market turbulence over the course of 2023, with potential geopolitical instability within this region. I would also expect HSFO proportion against the total to grow slightly since interests and investments for scrubber installations have largely held firm. UAE, a key shipping hub, will also always be the home for many cargo works which could support bunker demand – considering this, my outlook for Fujairah bunker market is still very positive.”

The positives and the negatives may end up balancing each other out in the end.

“Fujairah’s bunker market, in terms of volumes sold, is expected to hold steady in 2023. HSFO could be a contributing factor to help support the market. Still, two imminent downside risks are — UAE’s plans to cut oil production could lessen tanker callings and Arab Gulf war risk restrictions which might continue to cap bunker-only calls. Meanwhile, the proportion of HSFO sales might inch higher too, at the expense of LSFO. In any case, this seems to be the case in 2022 too. Scrubber earnings have been healthier in H2 2022 which resulted in more orders in recent months around Asia too. Hence, rising scrubber investments in the order book could support HSFO sales especially if these vessels ply long-haul routes and make bunker-only calls at Fujairah or seek requirements along with cargo works.”

Source: Platts

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