How the Mideast War Is Changing Global Bunker Buying and Shipping Strategies
By Jeslyn Lerh
Impact of the US-Israeli War on Bunker Buying Patterns and Shipping Strategies
SINGAPORE, Oct 16 (Reuters) - The US-Israeli war on Iran has altered bunker buying patterns for shippers globally as they turned to more spot and shorter-term purchases to cope with volatile prices while exploring more alternative locations for supply security, industry executives said.
More than seven months since the start of the conflict with Iran, prices of marine fuels remained well over 70% versus pre-war levels, according to data from bunker traders.
Changes in Contract Preferences and Pricing Volatility
Rerouting and diversions of vessels due to blockades at key waterways in the Middle East have also driven shippers to diversify refuelling locations, making them less inclined to lock in a longer-term contracts at one particular port, the executives said.
Spot Purchases and Flexibility
"The frequency of stems (spot purchases) is getting higher because a lot of owners will bunker the minimum to reach the next port if the market shoots up," said Peter Grunwaldt, chief executive officer at Seascale Energy and head of bunkering at tanker company Hafnia, on the sidelines of the Singapore International Bunkering conference.
Spot purchases give more flexibility to the shipowner, who decides whether to buy bunkers in that instance, depending on the daily price, suppliers said. In contrast, if they lock into a longer term contract, they will have to lift the agreed volume regardless of how the price swings.
Risk Aversion and Shorter Contracts
"When prices are elevated, you have this notion that if prices fall tomorrow, you don't want to be too exposed," said Mikkel Kannegaard, chief operating officer at Bunker Holding, the world's largest bunker seller by volume.
"So we have seen a trend where longer-term contracts have become less common," he told Reuters, adding that bunker trade has become more complex amid a more fragmented market.
Choong Zhen Mao, executive director at Singapore-based Equatorial Marine Fuel, said the duration of term contracts with buyers had shortened to a quarter or even a month, versus longer terms like six months or one year, before the war.
Alternative Bunker Ports and Diversification Strategies
Shifting Bunker Locations
Besides breaking up the size of bunker purchases, shippers are also turning to alternative locations to seek bunker supplies and refuel as hostilities around the United Arab Emirates' Fujairah port, which used to be a top supplier, intensified, the executives said.
"Around the Arabian Gulf in particular, traditional bunkering patterns are being torn apart," said Seascale's Grunwaldt.
"Diversions from Fujairah have clearly driven more enquiries to surrounding ports, so we now bunker in more ports than we used to," he added.
"Ports that were only used sporadically before, such as Port Louis, Colombo and Salalah, are now being used more frequently," he said, referring to ports in Mauritius, Sri Lanka and Oman.
Emergence of New Bunker Hubs
Bunker Holding's Kannegaard said he had seen more demand emerging in Africa and South Asia.
In response to the Middle East disruption, Vitol began bunkering at the Gwadar Port in Pakistan in July, offering a location outside the Strait of Hormuz from which to serve customers operating in the Gulf region.
Building Resilience Through Diversification
"Diversification is essential, both to manage today's disruptions and to build longer-term resilience," Vitol's Head of Asia Kieran Gallagher said.
"In the near term, that means broadening geographic sources of supply and developing new trade routes for conventional fuels."
(Reporting by Jeslyn Lerh; Editing by Florence Tan and Stephen Coates)