A decline in tanker movement through the Suez Canal is causing a divergence in global oil trading patterns, dividing regions into two main sectors: one encompassing the Atlantic Basin, North Sea, and the Mediterranean, and another covering the Persian Gulf, Indian Ocean, and East Asia. Recent purchasing trends indicate a shift, with European refiners reducing Iraqi Basrah crude imports and increasing acquisitions from the North Sea and Guyana. In Asia, heightened demand for Abu Dhabi’s Murban crude has raised spot prices, while flows from Kazakhstan to Asia have seen a significant decline.
Crude shipments from the US to Asia have sharply dropped, according to ship-tracking data, impacting flexibility for import-dependent countries like India and South Korea. Although the fragmentation is expected to be temporary, it presents challenges for nations reliant on oil imports and may constrain refiners’ ability to adapt to dynamic market conditions.
The decrease in oil tanker transits through the Suez Canal, particularly for liquefied petroleum gas and liquefied natural gas, is influencing product markets. Flows of diesel and jet fuel from India and the Middle East to Europe, as well as European fuel oil and naphtha heading to Asia, have been notably affected. Higher transport costs, stemming from Red Sea disruptions, are leading refiners to prioritize locally sourced oil.
The impact of Red Sea incidents is translating into higher oil prices due to increased transport costs. Refiners are forced to strike a balance between ensuring a secure supply and maximizing profits. Shipping rates for Suezmax crude tankers from the Middle East to Northwest Europe have surged, and the global benchmark Brent crude has seen an 8% increase since mid-December.
Despite the potential for diversification, the current scenario implies higher costs, which could impact refinery margins unless these costs can be passed on to consumers. The situation is not expected to result in a long-term rearrangement of oil flows, but ongoing conflicts in the Red Sea pose a risk of further disruptions, particularly following a recent Houthi strike on a tanker carrying Russian fuel.
“Geopolitics are not good for trade,” warns Adi Imsirovic, director of consultancy Surrey Clean Energy, emphasizing the challenging times for refiners, especially in Asia, who need to enhance flexibility in response to the evolving situation.