As more tankers leave the Suez Canal the way Europe

As more tankers leave the Suez Canal, the way Europe buys crude is changing – CNBC

Europe is at the center of the diversions as its tanker supplies are at high risk of attack.

“The decision on these diversions rests with the owners of European oil,” said Viktor Katona, senior crude oil analyst at Kpler. “European countries are seen as complicit in the Israel-Hamas war. They would rather go around the Cape of Good Hope than risk traveling through the Red Sea.”

The resulting delays in the delivery of products – including crude oil, diesel and LNG products – vary depending on the goods being transported. LNG ships travel faster than oil tankers because they are lighter and can reach speeds of up to 21 knots, compared to 12-13 knots for crude oil tankers.

Before the Red Sea disruptions, a tanker from Jamnagar, India, to Rotterdam, Netherlands would have taken 24 days. Passing through the Cape of Good Hope increased the duration of the same journey to 42 days. From Basra, Iraq, to ​​Milazzo, Sicily, a journey that would have taken 17 days now takes 42 days.

The longer transport times can affect the availability of tankers as their return journey takes longer to be loaded with products.

“It's not just the arrival that is delayed, the tankers also have a longer journey home to be refueled,” Katona said. “They expect 90 days for delivery. That is an enormous amount of time. The market underestimates the impact of transit time.”

He said he expects tankers in the spot market to see an increase in freight rates, noting that in recent days there has been an increase in the number of tankers carrying “clean products” such as diesel and gasoline.

“Ironically, tensions in the region are benefiting tanker owners by resulting in longer voyages, higher tanker utilization and ultimately higher freight rates,” said Andy Lipow, president of Lipow Oil Associates.

Katona warned that the diversions would be a lengthy, painful event but would provide a boost to both the U.S. and Brazilian energy industries. “We are seeing Europeans changing their purchasing habits with companies in the Atlantic basin without logistical restrictions,” he said.

The US is the largest supplier of diesel to the European diesel market, with diesel prices recently reaching their highest level in seven years.

According to Clarksons Securities, product tanker prices surged late last week following a decline in activity in the Red Sea. A Long Range 2 (LR2) tanker, which can normally carry around 75,000 tonnes of hydrocarbon naphtha, posted a 33% week-on-week profit rise to $74,200 a day on Monday. Medium-range (MR) tankers, which can typically carry between 30,000 and 40,000 tons of gasoline or gasoil, saw revenues rise 34% week-over-week to $42,500 per day.

“It’s more expensive, but the Europeans will get it.” [the diesel] faster,” said Katona.

Europe has strategic petroleum reserves with a 90-day supply, so there is no need to worry that Europe will run out of oil, but he added: “The new reality is that Europe will get its oil, but with insane shipping costs.”

“Imminent upside risk” in advance of diverted tankers

ENI's Faithful Warrior was the first tanker to start the trend when it diverted on January 11. The tanker is currently in South African territorial waters. Since then, Kpler has tracked a number of other tankers that were diverted en route to ports: Agitos to Rotterdam, Nissos Sikinos to Fos in France, Kimolos to Aliaga in Turkey, Odessa to Pachi Megara in Greece and the tanker Kinyras, the Laut Katona it still hasn't announced its final destination.

“Iraqi tankers carrying crude oil to Europe have begun sailing almost steadily toward the Cape of Good Hope,” Katona said. “Interesting, there is only one tanker with Iraqi crude oil that goes through the Bab-el-Mandeb Strait and incidentally takes the cargo to Turkey, to the same Tupras.” [refinery operator] The previous cargo was confiscated by the Iranian Revolutionary Guard off the Omani coast. So they didn’t stop trusting the route.”

Torm, Hafnia, Stena Bulk, Hafnia, BP, Frontline, Equinor, Euronav and Shell are among the tanker operators and energy companies that have chosen to avoid the area following recent warnings.

Kevin Book, managing director of Clearview Energy Partners, said this parade of tankers was part of the “looming upside risk” the company had passed on to its customers.

“Longer journeys for the barrels from the Middle East, which replaced Russian shipments to Europe, lead to delivery delays, which in themselves can be positive. And if it seems too risky to ship from Iraq to Europe via the Suez, then cargoes from other regional producers could soon follow suit,” Book said.