Dubai/Singapore: Bunker premiums at the refuelling port of Fujairah have more than doubled since end-May due to lower exports from Iran and Iraq, industry sources said on Monday.

Bahrain is keeping exports steady and not helping to ease premium levels, while Fujairah will have to vie with Singapore for Indian fuel oil supplies, which had fallen off earlier this year due to a heavy maintenance schedule in the second quarter.

Traders said if premiums stay at current levels, Indian fuel oil should find its way to the Middle East's top bunkering port and help ease the tightness.

"If the Indian refiners can command a better premium here, then they are going to sell into Fujairah, but it would really depend on what the offers are from the sellers," a trader said.

Fujairah, the world's No 3 ship refuelling hub, typically receives between 200,000-300,000 tonnes of the 380-centistoke grade shipping fuel from Iran, traders said. But as the summer approaches, Iran, the world's fifth-largest crude oil exporter, is capping international sales to feed domestic demand for the fuel which is also used for power generation.

"They are limiting their fuel oil sales outside the country as the summer is nearing and the demand locally will rise," said a Middle East-based trader familiar with bunker sales and purchases from Iran. "The supply shortage has certainly put a premium on bunkers sold in Fujairah, but that premium is only good for those who have the oil," a UAE-based bunker fuel supplier said. "If I'm relying on Iran for my supply, then I'm out of pocket either way. I can't make a profit to take advantage of a tight market, and I can't sell oil to cover my operational costs."

Besides Iran, supply flows from Iraq have been cut off, traders said. "Iraq also is limiting their sales, so we don't see them offering anything to the bunker suppliers in Fujairah, it's tough because Iran and Iraq offer regular cargoes to us monthly," another UAE-based trader said.

Iraq is one of three suppliers of bunker fuel to the Fujairah market, but is prone to occasional disruptions due to many old and erratic refineries in the country.

Bahrain is currently the only steady heavy oil supply source for Fujairah's bunkering market at the moment, traders said. "At the moment the flow from Bahrain has been quite steady, but we are hoping to see some Indian fuel oil flows moving in as well," a UAE-based fuel oil trader said.

But India could be an alternative supplier to meet the shortfall in Fujairah. The country has exported some 380,000 tonnes of fuel oil so far between January and May this year, compared with about 350,000 tonnes for the whole of 2008, traders estimate.

Indian refiners had halted fuel oil exports between March and April, as supplies dwindled due to refinery turnarounds and higher demand for bitumen from domestic infrastructure projects. The exports resumed in May. Asia fuel oil prices have surged to eight-month highs recently on sustained bargain hunting and steady marine fuel demand from Singapore.