OPIS Insights

The U.S./Israel-Iran conflict has disrupted global supply chains, tightened physical bunker availability, especially in Asia, boosted demand for shipping fuels in parts of the world, and resulted in a spike in bunker prices in ports globally.

OPIS by Dow Jones European markets editor Stacy Maphula interviewed Kasper Sørensen, head of marine fuels sourcing, East, and Gaetan Perret, head of marine fuels sourcing, West, at bunker company Seascale Energy, a joint venture between Cargill and Hafnia, to get an insight into how the company has adjusted in response to the changing market conditions.

The conflict in the Middle East has resulted in the de facto closure of the Strait of Hormuz, a main waterway connecting the Persian Gulf to the Gulf of Oman and the open ocean, which is preventing refined products from reaching global export markets. It has hindered buyers in Asia from receiving crude oil from refineries in the Middle East. Despite the extended ceasefire between the U.S and Iran while a peace deal is negotiated, military attacks are still taking place, keeping market sentiment weak and bunker prices high.

Bunker Demand Shock

“The conflict had an immediate and sudden impact on both availability and pricing. We saw an initial demand shock in Asia, which spread into Europe and the Americas,” Sørensen told OPIS.

“Secondary ports such as Port Louis and Colombo experienced tightness, while countries heavily reliant on Middle Eastern crude, such as Japan and South Korea, faced additional pressure. Physical premiums across key Asian hubs reached historically elevated levels during the peak disruption, although these have since moderated as market activity stabilized,” he added.

Market participants in the physical bunker supply chain have suffered severe disruptions, which have affected their capacity to deliver the quantities contracted.

Price volatility due to geopolitical uncertainty has resulted in buyers purchasing small quantities of bunker fuel to avoid long-term commitments.

“At the same time, certain shipping segments, particularly dry bulk, have also responded to the current high bunker price environment by reducing speeds and optimizing consumption, which has further influenced procurement behavior and purchasing patterns,” he added.

Middle East Production Shut-ins

The Energy Information Administration (EIA) said the closure of the Strait has led to a significant increase in disruptions of Middle East crude shipments since April, with Iraq, Saudi Arabia, Kuwait, the UAE, Qatar and Bahrain collectively seeing around 10.5 million barrels/day of production shut in during the month.

These shut-ins are expected to lead to large drawdowns on global inventories in May and June, helping to keep prices high even as oil shipments through the strait resume, according to the EIA.

Around 20% of the world’s oil supply passes through the Strait of Hormuz, and global oil prices have increased sharply higher in the two months since the U.S. and Israel launched strikes against Iran.

“The disruption led to a clear re-allocation of fuel oil demand toward Asia, with increased reliance on key hubs such as Singapore and China, as well as nearby secondary ports,” said Perret.

“Trade flows adjusted accordingly, particularly for wet tonnage, with vessels being redirected eastward. This resulted in a broader reshaping of regional supply chains rather than a single-source substitution,” he said.

European Bunker Market

HSFO and VLSFO bunker supply remains plentiful in Europe. However, bunker price increases have been driven by sharp increases in Brent crude. In the Port of Rotterdam, bunker HSFO and VLSFO rose by 63% to $695/mt on May 13 and 58% to $760/mt respectively from Feb 27, the day before the start of the war, OPIS pricing data showed.

“Europe has been comparatively less affected. While prices have increased in line with global dynamics, availability has remained generally stable across most ports,” Sørensen told OPIS.

“The main exception has been Panama, where congestion and high transit costs created a temporary bottleneck, although some bunker demand has eased as operators especially in the dry-bulk sector rerouted their vessels to avoid the canal,” he added.

The closure of the Strait of Hormuz has prevented refineries in the Middle East from exporting crude and HSFO to Asia. This has, subsequently, tightened Asian fuel oil supply, resulting in increased European VLSFO exports to Asia despite higher freight rates and longer voyage times on the Europe-Asia trade, according to market sources.

Global Bunker Market Outlook

“The recovery trajectory will largely depend on the timing and extent of the disruption. Asia is likely to face a more prolonged normalization due to its structural reliance on Middle Eastern crude and the time required to restart refinery runs,” Perret told OPIS.

“For now, we believe we are in a bit of a vacuum, waiting to see exactly how much of the impending supply shortage will ultimately be offset by any potential demand destruction,” he added.