Patterns of oil supply are shifting due to assaults in the Red Sea and increased freight charges

Patterns of oil supply are shifting due to assaults in the Red Sea and increased freight charges

The global oil market is growing increasingly fragmented due to militant strikes in the Red Sea and rising freight charges, making surrounding areas' supplies more appealing.

Terrorist assaults in the Red Sea and rising freight charges have made supplies from closer to home more appealing, making the global oil market seem more localized.

One trade region, spanning the Persian Gulf, the Indian Ocean, and East Asia, is focused around the Atlantic Basin and includes the North Sea and the Mediterranean Sea. This division is being prompted by the fall in tanker traffic via the Suez Canal. Covers. Although the lengthy and costly trip around the southern tip of Africa is still used to transport crude oil between these locations, current purchasing trends suggest a divergence.

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According to dealers, several refiners in Europe stopped importing Iraqi Basra oil last month, while purchasers on the continent are now purchasing cargoes from Guyana and the North Sea. Spot prices for Murban crude, which is produced in Abu Dhabi, increased in mid-January due to a steep decline in flows from Kazakhstan to Asia.

Crude loadings from the US to Asia have decreased by more than a third since December of last year, according to ship-tracking data from Kpler.

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Although this fragmentation won't last forever, it is already making it more difficult for import-dependent nations like South Korea and India to diversify their oil supply sources. This reduces refiners' ability to adapt quickly to shifting market conditions and may eventually affect profitability.

Victor Katona, chief oil analyst at data analytics company Kpler, said that "the shift toward logistically easier cargo makes commercial sense" and that it will continue to do so as long as freight prices are high because of problems in the Red Sea. "Choosing between security of supply and maximization of profits is a difficult balancing act."

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According to a notice published on January 30, oil tanker transit via the Suez Canal decreased by 23% last month as compared to November. Liquefied petroleum gas and liquefied natural gas had declines of 65% and 73%, respectively, which was an even more noticeable drop. correspondingly.

The product markets most impacted include flows of diesel and jet fuel to Europe from India and the Middle East, as well as flows of European fuel oil and naphtha to Asia. Amid concerns that it might become more difficult to get from Europe, Asian prices for naphtha, a feedstock used in petrochemicals, surged to their highest level in almost two years last week.

Refiners are being encouraged to go local wherever possible as a result of the Red Sea strikes, which are impacting oil prices via increased shipping costs. According to Kpler, since mid-December, prices for Suezmax oil tankers traveling from the Middle East to northwest Europe have almost halved. During that time, the global benchmark Brent crude has increased by about 8%.

According to market dealers, the price of shipping oil from the US to Asia, where production is booming, increased by more than $2 per barrel over a three-week period in January.

"It is still possible to diversify, but it will cost more," UBS Group AG commodities analyst Giovanni Stanovo said. "It will reduce refineries' profit margins unless it can be supplied to the final customer.”

It seems unlikely that the Red Sea crisis will result in a long-term reorganization of oil flows, but it is also unlikely that the dispute will be resolved very soon. Rather, there is a chance for more interruptions, particularly in light of the Houthi assault on a Russian petroleum ship that occurred late last month. The terrorist organization supported by Iran had earlier said that Chinese and Russian ships would not be targeted, making that incident noteworthy.

Business-wise, geopolitics is bad," said Adi Imsirovich, head of consultancy Surrey Clean Energy. "As a buyer, I would be cautious." Refiners have challenges in this period, particularly those from Asia, and they must be more adaptable.