- A series of attacks in the Red Sea, primarily by Yemen’s Houthi militants, has raised concerns for oil importing countries.
- While oil shipments remain stable, potential disruptions could necessitate quick adjustments in supply chains.
- Rising insurance costs and re-routing via the Cape of Good Hope may impact voyage costs and freight rates.
- Asia, a major oil importing region, is evaluating alternative plans, potentially affecting insurance costs and refining margins.
- The situation poses challenges for Russian oil exports to Asia and may lead to increased tanker freight in 2024.
Growing Concerns Amid Red Sea Attacks
Recent attacks on shipping routes in the Red Sea have spared oil supplies from major disruptions, but concerns are mounting for oil-importing countries. The disruption has affected container shipping lines, while oil shipments remain stable. The challenge lies in the need for supply chains to adjust swiftly if the disruption persists.
Impact on Shipping Costs and Global Freight Rates
New insurance for Red Sea routes may add over $1/b to voyage costs. Re-routing via the Cape of Good Hope will extend voyage length, in-transit times, and fuel costs. Higher vessel utilizations could lift global freight rates and widen inter-regional crude spreads. The attacks prompt many shippers, tanker owners, and oil companies to suspend voyages through the Red Sea.
Implications for Asia and Oil Markets
Asia, a major oil-importing region, is evaluating alternative plans to ensure steady feedstock flows amid the Red Sea crisis. The crisis may create hurdles for Russian crude flowing to Asia, potentially impacting oil flows into China and India. Asian refiners may consider cutting Middle Eastern term contractual volumes and exploring alternative crude sources to maximize margins. Geopolitical tensions in the Middle East pose risks to oil prices, with OPEC+ market management playing a critical role in 2024.
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Source: SP Global
