December 30, 2023 [Reuters]-At least four tankers transporting diesel and jet fuel from the Middle East and India to Europe are taking the longer route around Africa to avoid the Red Sea, ship tracking data show.
Diversions around the Cape of Good Hope can lengthen tanker voyages to Europe by up to three weeks, leading to higher freight costs and potentially supply disruption.
But while some charterers including BP (BP.L) have diverted vessels in the wake of attacks by Yemen’s Houthis, others continue to use the shorter Red Sea route via the Suez Canal.
Tankers began avoiding the Red Sea earlier this month after the Houthi militant group stepped up maritime attacks against commercial vessels, which it said was a response to Israel’s military campaign in the Gaza Strip.
Container shipping firms including Maersk and CMA CGM announced their return to the route, after the United States announced the establishment of a naval taskforce aimed at protecting merchant vessels.
However, others – including Hapag Lloyd (HLAG.DE) – consider the risk too great still, and there is uncertainty over the efficacy of the U.S.-led operation which has so far struggled to gain traction with some of its key allies, partly because of wavering political support for Israel’s attack on Gaza.
The diverted vessels loaded their cargoes from Bahrain, Kuwait, Saudi Arabia and India and were chartered by Sinopec, Kuwait Petroleum Corporation (KPC), Aramco, and Reliance Industries Limited, respectively, according to shipping analysis firm Kpler.
Out of those countries only Bahrain was on the list of 12 nations that the U.S. publicly stated were joining Operation Prosperity Guardian out of 20 total. Saudi Arabia – alongside the United Arab Emirates – said it had no interest in the operation.
Reuters could not confirm which companies instructed those vessels to divert away from the Red Sea. The instruction to divert a tanker could come from the shipowner, the vessel charterer or the cargo buyer in instances where those are not the same company.
Reliance and Sinopec did not immediately respond to Reuters’ requests for comment, while Aramco declined to comment and KPC said that it had not asked oil tankers to avoid the Red Sea.
BUSINESS AS USUAL
While further oil cargo diversions could occur as long as shippers or oil companies have doubts about the safety of Red Sea passage, many vessels have continued to use the route.
At the time of publishing almost 4.5 million barrels of oil products and nearly 2 million barrels of crude oil are loaded onto vessels currently traversing the Red Sea and Suez Canal for European destinations, Kpler data show.
By comparison, the diverted vessels, Sti Solidarity, Jag Lokesh, Ps Atene and Karimata, are carrying a combined 2.4 million barrels of diesel and jet fuel around the Cape of Good Hope.
The full volume might not reach Europe – Ps Atene updated its destination from Gibraltar to Maputo, Mozambique, on Dec. 28 according to Kpler.
But Red Sea disruptions have so far not impacted European fuel prices and refining margins.
Northwest European low-sulphur gasoil futures’ premium to Brent crude futures was 10% lower on Dec. 28 than on Dec. 1, indicating that gasoil is relatively well-supplied compared to crude according to Investec head of commodities Callum Macpherson.
The gasoil market structure has also flattened in December – another sign that traders are not anticipating imminent supply shortages in Europe.
European middle distillate markets could still be sensitive to any disruptions, however, because of seasonally low stock levels of both gasoil and jet fuel in northwestern Europe and low refinery run rates after the autumn maintenance period, Kpler analyst Zameer Yusof said.
He added that suppliers in the region will likely be reliant on diesel imports from the U.S. Gulf Coast into next year.
Europe’s diesel market was supplied mainly by Russian cargoes up until an EU embargo on Russian oil products from Feb. 5 this year in light of the war in Ukraine made Europe heavily reliant on the Middle East and Asia to fill its structural shortage of the product.
Over 90% of the 14.3 million barrels per month of jet fuel that Europe has imported from other regions this year came from markets east of Suez according to Kpler, and nearly 58% of its average monthly diesel imports of 24.4 million barrels.
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