Middle East Fuel Oil Exports Poised for Increase with Iraqi-Saudi Contribution

Middle East fuel oil exports are projected to reach a four-month high in June, according to commercial sources and shipping data. This rise is attributed to Iraq and Saudi Arabia rerouting supplies to alternative ports, coinciding with an anticipated rebound in Strait of Hormuz traffic. Regional supplies could further increase as more shipments gradually exit the Strait, following a temporary US-Iran agreement to end the conflict, which contributed to a drop in high-sulfur fuel oil prices in major trading hubs like Singapore. Data from Kpler and London Stock Exchange Group indicates Middle East exports may reach around 2.4 million tons (508,000 bpd) this month. While over 20% higher than May, this remains significantly below the pre-conflict monthly average of 5.5 to 6 million tons. Balash Jain, an FGE Nexant ECA Middle East oil markets consultant, expects fuel oil flows through the Strait of Hormuz to increase within 60 days but rules out a significant rebound. He noted shipping companies will likely remain cautious due to negotiation uncertainties and peace agreement stability. Shipping data revealed the Aframax tanker "Jamsonoro," loaded with about 80,000 tons of Iraqi fuel oil, departed the Strait Wednesday, heading to Fujairah. Jain stated factors like regional balances, limited capacity for significantly boosting refinery operations, and rising seasonal summer demand could curb exports. High-sulfur fuel oil is primarily used for powering ships and generating electricity after refinery processing. Syria, Saudi Arabia, and Oman topped the list of the three largest HSFO exporters from the Middle East in June, compared to Iraq, Kuwait, Iran, and the UAE, which led before the conflict. Iraq began exporting fuel oil from Syria's Baniyas port in March, with volumes reaching an unprecedented over 600,000 tons in June. Jain emphasized Iraq's focus on diversifying export routes, calling the Syrian corridor a strategic alternative to the Strait of Hormuz. Iraq previously relied mainly on Khor Al Zubair port for fuel oil exports. Alternative solutions led to millions of barrels of Iraqi fuel oil trucked through Syria to Baniyas port for re-export. Saudi Arabia is expected to export over 300,000 tons of fuel oil in June from Yanbu port, a five-month high. Oman's fuel oil exports are also anticipated to reach approximately 300,000 tons in June, their highest in over two years. Relatedly, trade sources expect Iranian fuel oil trade to remain limited despite a 60-day waiver from US sanctions under the temporary peace agreement, as banking transactions and payments continue to pose a major obstacle.