The Red Sea attacks deal a double blow to the oil market

The global oil market has begun to divide into two main markets (Shutterstock)

The oil market is increasingly shifting to regional destinations and sources with the Houthi attacks in the Red Sea, as part of the expansion of the scope of Israel's war on the Gaza Strip, and the rise in shipping prices, as Bloomberg pointed out in a report today.

The beginnings of a split

The decline in the movement of oil tankers through the Suez Canal leads to the beginnings of a division into a commercial area around the Atlantic Basin, which includes the North Sea and the Mediterranean, and another area that includes the Arabian Gulf, the Indian Ocean, and East Asia, according to Bloomberg, which indicated that crude is still transported between the two regions, via... A longer, more expensive trip around the southern tip of Africa, but the recent buying pattern suggests a split in the oil market.

The Houthi group in Yemen says that it targets Israeli ships or those heading to Israeli ports, but the United States and Britain recently began targeting sites in Yemen under the claim that they are used in attacks on tankers in the Red Sea, which prompted the Yemeni group to consider ships belonging to the two countries as legitimate targets. .

In Europe, some refiners gave up buying Iraqi Basra crude last month, according to the agency, quoting one of the dealers, while buyers of the Old Continent obtain shipments from the North Sea and Guyana. In Asia, a jump in demand for Murban crude from Abu Dhabi led to a rise in spot prices in mid-January, and flows from Kazakhstan to Asia declined sharply.

Oil shipments from the United States to Asia fell by more than a third last month compared to December, according to what the agency quoted ship-tracking data from Kpler.

The market division does not seem permanent, but it makes it more difficult for import-dependent countries such as India and South Korea to diversify the sources of their oil supplies, and for refineries, this limits their flexibility in responding to rapidly changing market data, and could ultimately lead to the erosion of their profit margins, according to Bloomberg.

It makes sense

The agency quoted Victor Katona, chief oil analyst at data analytics company Kpler, as saying that the shift towards easier shipments from a logistical standpoint makes sense from a commercial standpoint, and he expected the situation to remain as it is as long as the Red Sea turmoil kept shipping prices high.

Katona considered balancing the security of supplies and maximizing profits a difficult matter.

Kpler stated in a note issued on January 30 that the transit of oil tankers through the Suez Canal decreased by 23% last month compared to November, and the decline was more pronounced for liquefied petroleum gas and liquefied natural gas, which decreased by 65% ​​and 73%, respectively. , according to the agency.

In product markets, flows of diesel and jet fuel from India and the Middle East to Europe, and European fuel oil and naphtha heading to Asia were the most affected, according to Bloomberg.

The agency stated that prices of naphtha - a raw material for petrochemicals - reached their highest levels in nearly two years last week amid fears that it will become difficult to obtain from Europe.

In another impact on oil prices, the attacks in the Red Sea raised transportation costs, which encourages refineries to go regionally whenever possible. Kpler said that the prices of Suez Max oil tankers from the Middle East to northwestern Europe jumped by about Half since mid-December, Brent crude, the global benchmark, rose by about 8% during the same period, according to the agency.

The cost of delivering oil to Asia from the United States - where production is increasing - increased by more than $2 per barrel over a three-week period in January, according to traders participating in the market.

Diversity is possible...but

Giovanni Stanovo, a commodity analyst at UBS Group, said: “Diversification is still possible, but at a greater cost...and if it cannot be passed on to the final consumer, it will cut into refinery margins,” Bloomberg quoted him as saying.

It is unlikely, according to the agency, that the situation in the Red Sea will lead to a re-arrangement of oil flows in the long term, but it is also difficult to see a solution to the conflict in the near term. Instead, there is a great risk of further unrest, especially after the Houthi attack. On a tanker carrying Russian fuel late last month.

Bloomberg quoted the director of the Sari Clean Energy Consulting Company, Adi Imsirovic, as saying: “Geopolitical factors are not good for trade... If I were a buyer, I would be careful. It is a difficult time for refineries, especially Asian refineries, which need more flexibility.”

Source: Al Jazeera + agencies