THE disruptions in the Red Sea are expected to continue impacting the fundamentals of the Asian fuel oil market. Long range two tankers especially are benefitting as higher very low sulphur fuel oil supplies are expected to keep flowing to Asia from the Middle East in the first quarter.

In its latest tanker report, brokers BRS said: “Fuel oil fundamentals are expected to be impacted further by inefficiencies stemming from disrupted west to east trade flows, rising intra-Asian fuel oil trade and increased bunkering demand driven by longer voyage distances amid the Red Sea trade disruptions and the subsequent rerouting of vessels round the Cape of Good Hope, which is seeing ships consume more fuel at potentially higher speeds.”

BRS added: “In the current disruptions, LR2s are expected to be favoured further, followed by MR2s, as higher VLSFO supplies are expected to keep flowing to Asia from the Middle East during the quarter.”

This scenario is being played out at top bunker port Singapore, where VLSFO prices have risen and the availability of VLSFO is tight. “There will be tightness going forward,” said SDE International executive director Simon Neo. 

The veteran bunker expert noted, however, that the higher prices are not so much due to congestion as much as being a reflection of higher oil prices. This is borne out by the over 10% jump in current VLSFO prices from the first week of January on volatile oil prices due to geopolitical and economic events.

Instead, he sees tight supply being a function of bunker buyers purchasing greater amounts, which affects delivery and turnaround times for bunker delivery vessels.

Tanker and bulker operators on the tramp trades will be the most affected, Neo suggested, since container lines have regular schedules and can plan their bunker deliveries well ahead of time.

It had been suggested that other ports such as Port Klang or Colombo may also be able to take up some of the slack. Both of these ports require minimal deviation for vessels going round the Cape of Good Hope.

Several Malaysian bunker suppliers contacted declined to comment. But Bunkerex figures show a sudden spike in indicative VLSFO prices at Port Klang from January 29, bringing them almost level with Singapore. Prices at the key Malaysian port had been at a discount for most of the second half of January. More than a quarter of Singapore’s fuel oil exports go to Malaysia.

Neo, however, noted that Singapore’s biggest advantage is its use of multi-flow metering for deliveries and reputation for bunker quality.

While there may be some price and delivery time advantages in using other ports, there are also greater risks. “Without MFM how sure are you about what quantity goes in your tank?” asked Neo. He added that there are also bunker quality issues to think about.