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Europe’s crude oil imports from the Middle East have declined amid continued tensions in the Red Sea off the coast of Yemen. Fortunately, there is an alternative: the Atlantic Basin.
Meanwhile, Asia seems all too content to take more oil from the troubled Middle East at the expense of oil from the Atlantic Basin.
A rift is emerging in the oil market, but no one knows how long the rift will last due to associated oil market trends.
When Yemen’s Houthis began attacking ships in the Red Sea in November, it seemed like a minor problem, at least judging by the reaction of oil traders. The assumption in November was that if the Houthis became too much of a nuisance for shippers, the U.S. Navy would quickly step in and take action to resolve the issue.
The Houthis have become too much of a nuisance for shippers. The US Navy intervened and began firing on Houthi targets on land. This alone did not produce the desired effect. Rather, the U.S. response only strengthened the Houthis’ determination to continue attacking any shipping in the Red Sea.
Despite several countries stepping in to escort ships through the shortest route between Asia and Europe, most shippers are rerouting their ships around the Cape of Good Hope or rerouting shipping and We have chosen to combine air transport to transport goods and products from Asia to Europe. Related article: Buffett-backed Occidental CEO says there will be an oil shortage by 2025
This is already a huge burden for most parties, as both options are more expensive than the Suez Canal, through which the Red Sea route passes, and are added to the final price of the goods and goods mentioned above.
Oil was no exception. Not only did the tanker journey around Africa take weeks to more than a month, it also increased the final bill for oil by millions of dollars. Increasingly cash-strapped Europe had little choice but to look for more affordable alternatives to Middle Eastern oil, which had suddenly become a headache to buy.
Europe is looking to the West and increasing its purchases of U.S. oil, but it is also increasing its purchases of Guyanese crude, Bloomberg reported this month. European buyers also want to pay for North Sea oil, the same North Sea oil that British and Norwegian activists want to stop. But so far they have not been successful, so there is some diversity in oil diets in Europe.
Meanwhile, Asian buyers are buying Middle Eastern crude at the expense of U.S. crude, according to Kpler data published by Bloomberg. Shipping volumes from the United States to Asia fell by a third in January, a ship-tracking data provider said.
At first glance, this split is the oil market’s natural response to supply disruptions caused by the Red Sea crisis. But perhaps unsurprisingly, this reaction could cost margins for refiners with constrained oil choices, both in Europe and Asia. And when faced with such a prospect, refiners may decide to pass on the additional costs to customers.
“Diversification is still possible, but the cost will be higher,” Giovanni Staunovo, a commodities analyst at UBS, told Bloomberg in comments on the oil and Red Sea situation. “If that doesn’t get passed on to the end consumer, it’s going to put pressure on refinery margins.”
However, it is an interesting question how much of the additional costs refiners can afford to pass on to end consumers, especially given the broader inflation situation in Europe. Probably the answer is “not very much.”
The euro zone and other EU member states are still suffering from higher-than-usual inflation, which is already suppressing demand for everything, including energy. Higher fuel prices due to refiners’ melt margins will not reverse this situation.
The most pressing question, therefore, is how long this crisis will last. Unfortunately, the answer is anyone’s guess. For now, there is little room for optimism. The United States has recently stepped up its military response to attacks on American targets in the Middle East, but this appears to be just the beginning.
The Houthis have not stopped attacking ships, and there appears to be a broader problem of piracy in the Red Sea. Reuters reported last month that India had deployed at least a dozen ships to the east of the Red Sea and investigated more than 250 ships in the area in response to increased piracy activity.
Indian military and defense officials have reported at least 17 hijackings, attempted hijackings and suspicious approaches in parts of the Gulf of Aden and Arabian Sea patrolled by the Indian Navy since December 1. was there.
“The Houthis and piracy are disconnected. However, as Western efforts are focused on the Red Sea, the pirates are looking to take advantage of this opportunity,” the official said, adding that, as analysts expected, It was suggested that the Red Sea conflict has already begun to spread to surrounding areas. .
In this situation, the current fragmentation of the global oil market is likely to continue for some time yet.
Written by Irina Slav for Oilprice.com
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