Brazilian state-run oil firm Petrobras suspended its shipping routes through the Strait of Hormuz, including bunker hub Fujairah, as tensions in the Middle East escalate after a US drone strike killed Iranian military commander Qassem Soleimani and an Iraqi militia leader.
"Regarding the suspension of the transit of ships through the Strait of Hormuz, Petrobras informs that it routinely evaluates changes in the routes of its vessels in order to avoid sections that pose a risk to the safety of operations," Petrobras told S&P Global Platts in an emailed statement. "The company evaluated this scenario and, together with the Brazilian Navy, decided to avoid, at the moment, the transit through the Strait of Hormuz."
The Brazilian major added that such a change will not have any impact on fuel supply in Brazil and it continues to monitor and evaluate developments in the Middle East.
Soleimani, the head of Iran's elite Quds Force, was killed on January 3 along with the deputy commander of Iraq's Popular Mobilization Forces Abu Mahdi al-Muhandis. Iran's Supreme Leader Ayatollah Ali Khamenei warned that "a harsh retaliation is waiting" and Iranian officials said the country would abandon limitations on enriching uranium.
Saudi Arabia's foreign minister Prince Faisal bin Farhan said the kingdom does not want to see further escalation of tensions in the region and UAE Minister of State for Foreign Affairs Anwar Gargash said the wisdom and political solutions must prevail over confrontation and escalation.
Traders in the Middle East said despite Petrobras' suspension of transit ships, other companies continue to bunker in Fujairah port. They added Petrobras may need to charter ships through the Persian Gulf bunkering hub going forward and noted Petrobras canceled on Monday a spot contract from 1000 tons of low sulfur fuel oil in Fujairah -- a product in high demand as the IMO 2020 mandate obliges ships to use marine fuels with a sulfur content of 0.5% or less.
"Fujairah is the only port where you can get significant VLSFO [very low sulfur fuel oil] in the region, Petrobras may charter out the job to someone else," said a Fujairah trader adding this was a "knee-jerk reaction" from Petrobras.
Another trader said companies are worried that charter rates may increase on the escalated risk.
"Most people owning their own oil in their own ships will likely move their oil in chartered vessels if something happens, so spot charter rates may go up, but this a backstop now for many people," he said.
Delivered MF 0.5% bunker prices at Fujairah hit a record high of $780/mt on January 6, trending up in December amid robust demand, Platts data showed.
