From Ghislain Lira

Singapore, June 25 (Reuters) - Middle East fuel oil exports are expected to hit a four-month high in June as Iraq and Saudi Arabia divert supplies to other ports, trade sources and shipping data indicate, while shipping traffic through the Strait of Hormuz is expected to pick up.

Supplies from the region could rise even further as more shipments gradually exit through the strait after the United States and Iran reached a temporary agreement to end their war, leading to a drop in high-sulfur fuel oil prices in major trading hubs, such as Singapore.

Data from Kpler and the London Stock Exchange Group showed that Middle East exports are expected to reach around 2.4 million tons (508,000 barrels per day) this month, an increase of more than 20 percent compared to May. However, this figure remains significantly lower than the pre-war monthly average of between 5.5 million and 6 million tons.

“Fuel oil flows through the Strait of Hormuz are expected to increase over the next 60 days, but a major recovery is unlikely,” said Balach Jain, Middle East oil markets consultant at FGE Nexant ECA.

Jane predicted that shipping companies would continue to be cautious due to the uncertainty surrounding the outcome of the negotiations and the durability of the peace agreement.

Shipping data from the London Stock Exchange Group revealed that the Aframax tanker Jamsunuru, carrying approximately 80,000 tons of fuel oil loaded in Iraq, left the strait late Wednesday and is heading towards Fujairah.

Jin noted that other factors could curb exports, such as regional balances, limited capacity to significantly increase refinery operations, and high seasonal demand during the summer.

High sulfur fuel oil is used to power ships and generate electricity, and is processed in refineries.

Iraq and Saudi Arabia are rerouting exports, while Oman is increasing its volume.

Shipping data showed that Syria, Saudi Arabia and Oman were the top three exporters of high-sulfur heavy fuel oil from the Middle East in June, while Iraq, Kuwait, Iran and the UAE were the largest exporters before the war.

Iraq began exporting fuel oil from the Syrian port of Banias for the first time in March, and quantities reached an unprecedented level exceeding 600,000 tons in June.

"Iraq is still focused on diversifying its export routes, and the Syrian corridor is a strategic alternative to the Strait of Hormuz," said Jin.

Iraq primarily exported fuel oil from the port of Khor al-Zubair before the US-Israeli war on Iran. This alternative solution involved transporting millions of barrels of Iraqi fuel oil by truck through Syria to the port of Banias before re-exporting it.

As for Saudi Arabia, it is expected to export more than 300,000 tons of fuel oil in June, the highest level in five months, from the port of Yanbu on the Red Sea, to which it has diverted some of its supplies.

Fuel oil exports from Oman are also expected to reach approximately 300,000 tons in June, the highest level in more than two years.

Meanwhile, trade sources expect that Iranian fuel oil trade will remain limited despite the 60-day exemption from US sanctions under the interim peace agreement, and that banking transactions and payments will remain a major obstacle.