Iranian fuel oil exports to East Asia surge to a record in June

Iranian fuel oil exports to east Asia surged to a record of over 1 million tonnes in June because of a tight market, particularly for on-specification cargoes, traders said on Tuesday.

The bulk of the cargoes, mainly of the 380-centistoke (cst) grade loaded from Iran's Bandar Abbas port, were delivered by three Very Large Crude Carriers (VLCCs). That's the highest number of supertankers from the country to reach East Asia in one month, Reuters data showed.

Another 500,000-550,000 tonnes, on board two supertankers, are expected to arrive in July, with the total for the month at 750,000-800,000 tonnes so far, they added.

"We have never seen so much Iranian volumes in a single month, ever," a Singapore-based Asian trader said. "It was only mid last year when Bandar Abbas cargoes started finding their way here. The heavy flows were drawn by the tight market here."

The cargoes, a combination of 380-cst and straight-run 280-cst from Bandar Mahshahr, were transacted at premiums of $1.00-$2.00 and around $10.00 a tonne, respectively, to Singapore spot 180-cst quotes on a cost-and-freight (C&F) basis.

The cargoes were all purchased on a C&F basis, delivered by three supertankers owned by the National Iranian Oil Co's (NIOC) shipping arm. It was not immediately clear who the buyers were, traders said.

The first VLCC, Hatef, reached Singapore on June 6. The second, Mayzonah, arrived on June 19 and discharged off Pasir Gudang in neighbouring Malaysia and the third, Huwayzeh, landed on Monday and is discharging off the Indonesian ship-to-ship transfer point of Karimun.

May volumes were also heavy, with the arrival of two VLCCs from Iran, up from one a month since around the third quarter of last year.

The June volumes of 1.2 million tonnes lifted the monthly average inflows to 640,000-645,000 tonnes, almost doubling last year's average of 335,000-340,000 tonnes.

Despite the heavy Iranian arrivals, the market has stayed strong throughout the month, with fuel oil's front timespread averaging at a backwardation of $5.28 a tonne from June 1 till Monday, up from May's average of $3.51.

It was balanced by 16-month low Western supplies, at 2.8-2.9 million tonnes, for June-arrival as well as below-average arrival volumes of Saudi, Kuwaiti and Indian fuel oil cargoes.

The market was also supported by demand from unexpected sources such as Bangladesh, seeking about 100,000 tonnes a month for the second half of this year, and Malaysia buying 40,000-50,000 tonnes monthly from April to August.

The Iranian cargoes started arriving in East Asia by VLCCs from around July-August last year. A tightening Singapore market and rising fixed-price levels opened the arbitrage for the low-density, low-water Bandar Abbas cargoes to find their way out of the Fujairah market to Singapore.

Since then, there has been at least one VLCC, usually carrying a combination of 380-cst and the straight-run feedstock, reaching here each month.