Geopolitical Tensions Drive Sharp Bunker Price Rises

Bunker fuel prices reached near-peak levels in September 2024 amid escalating Middle East conflict and constrained supply. The MGO LS bunker index rose by $167.28 per metric ton, climbing from $1,349.80 to $1,517.08. Escalating Middle East conflict and reduced Gulf output tightened distillate and VLSFO supply, pushing bunker indices to sharp monthly gains by end-September.

Lower Gulf output and falling global inventories increased supply pressure. Gulf diesel and gasoil exports stayed substantially below pre-conflict levels. Refinery capacity elsewhere struggled to compensate for the Gulf shortfall. Strong distillate margins increased competition for low-sulphur blending components, limiting VLSFO availability. Sergey Ivanov said, "September’s bunker market was driven primarily by geopolitical and supply-side factors." Middle East uncertainty, reduced Gulf and Russian product flows, and tight distillate and VLSFO supply supported prices.

By the end of September, all major fuel grades recorded significant increases.

Regional spreads narrow as markets adapt to new cost realities

Scrubber and ECA spreads declined across key hubs. The MABUX Global Scrubber Spread declined by $9.95 to $143.69. Its monthly average, however, increased by $3.75. In Rotterdam, the SS Spread contracted sharply by $55.00, falling to $65.00 and below the $100 benchmark. The monthly average there decreased by $24.54. Singapore's SS Spread narrowed by $27.00 to $125.00, with its monthly average down $30.84.

The ECA Spread in Istanbul declined by $50.00 to $75.00, also falling below the psychological $100 threshold. Its monthly average decreased by $85.17. Regional differences persisted for HSFO and VLSFO. RED III requirements increasingly affected Northwest European bunker economics. In Rotterdam, higher compliance costs weakened competitiveness versus ports like Antwerp and Hamburg.

LNG competitiveness wanes amid regional supply tightness

LNG strengthened during September as European gas prices moved higher amid tighter supply. Concerns over relatively low European storage levels affected the market. Europe is heading into winter with gas storage levels among the lowest in the past two decades. Middle East tensions also disrupted LNG supplies from Qatar. Gas and LNG prices were sharply higher in Europe and Asia due to these supply disruptions.

Despite this price strength, LNG’s competitiveness against conventional bunker fuels reduced in several locations. Competition intensified for cargoes avoiding geopolitically sensitive maritime chokepoints. LNG still has significant upside potential, with prices potentially rising by around one-third. Low European inventories, limited supply flexibility and strong competition are expected to keep the LNG market under upward pressure through the coming winter.

Looking ahead, Ivanov expects the SS Spread to maintain a moderate downward trend in October, with ECA Spread dynamics seeing no substantial changes.