Commodity Compass Analytics (CCA) An Oil Odyssey – Red Sea Tension Sends Oil on a Long Voyage Home

Commodity Compass Analytics (CCA) An Oil Odyssey – Red Sea Tension Sends Oil on a Long Voyage Home Head of FIC & Commodity Research ▪ Like Odysseus navigating a succession of hazards on his voyage home, oil cargoes leaving Dr Mike Haigh the Red Sea are now being forced through an increasingly complex and dangerous journey. What was once a relatively direct route to Asia (pre-war) now involves detours, Cross Commodity Strategist transhipments and multiple chokepoints, with each stage introducing new risks. The result Jeremy Sellem is that a barrel of oil must travel farther and pass through more obstacles before reaching its destination. The Red Sea oil trade is beginning to resemble an energy-market version of The Odyssey, where the journey itself has become the challenge.

▪ The Bab al-Mandab has now emerged as another inevitable obstacle in this modern voyage. Based on the three confirmed incidents in the Red Sea last week and the composition of tankers that crossed successfully, the Houthis appear to be targeting Saudi-flagged vessels, while Chinese-flagged tankers carrying Saudi crude have continued to transit Bab al-Mandab. Total Red Sea oil flows have dropped by 4 mb/d since July 1, driven by a significant 3.7 mb/d decline in Bab al-Mandab traffic. Saudi Arabia redirected roughly 0.5 mb/d of flows via the Suez Canal in the last week, while Russian Red Sea exports dropped by 2.2 mb/d.

▪ As an alternative to navigating through the Bab al-Mandeb, Saudi crude is first moved through Saudi Arabia's East-West Pipeline to Yanbu, where it is loaded onto a VLCC. As fully laden VLCCs cannot transit the Suez Canal, the cargo is transferred into Egypt's SUMED pipeline, reloaded in the Mediterranean, and then shipped through Gibraltar and around the Cape of Good Hope. To avoid the missile and drone threat near the Bab al-Mandab and Gulf of Aden, vessels continue across the Indian Ocean and through the Strait of Malacca before reaching their destination. The result is a far longer and more costly voyage than the traditional Red Sea route. This highly disruptive diversion assumes crude can still leave the Saudi Yanbu terminal. That assumption looks increasingly uncertain after Houthi forces reportedly targeted the facility over the weekend of 25 July.

▪ So, like the mythical voyage itself, each new hurdle appears to create another detour rather than a direct path home. Even when attacks temporarily subside, vessel operators will be reluctant to immediately return. Much like sailors avoiding dangerous waters in the ancient tale, tanker owners continue to steer around areas perceived as high risk.

▪ Meanwhile, China has yet again become a hugely important supporting character in this oil market odyssey over the last week. Chinese crude imports are up almost 2mb/d over the week, and stronger refinery utilisation (up 6%) compared to early July, have provided a source of demand strength at a time when shipping disruptions are constraining global trade flows. State-owned refiners have driven much of the recovery in processing activity, helping absorb additional crude supplies.

▪ Lastly, in Kazakhstan, disruptions to CPC exports, elevated refinery outages in Russia, and recurring attacks on shipping infrastructure demonstrate that the market remains exposed to further setbacks. Just as Odysseus faced a new challenge whenever one obstacle appeared behind him, the oil market has moved from one disruption to another without returning to normality. The central theme is clear: the greatest challenge is no longer producing the oil but safely delivering it through an increasingly hazardous journey.

Commodity Compass Analytics (CCA)

Oil Odyssey: The Long Voyage Home In Christopher Nolan’s recent movie hit, The Odyssey, Odysseus’ journey home becomes a seemingly endless series of detours, obstacles and dangers, with every milestone revealing another challenge ahead. Today’s oil trade in the Red Sea bears a striking resemblance and recent developments suggest the journey is becoming even more perilous. While admittedly not perfectly verifiable, Saudi Yanbu loadings edged down to 3.3 mb/d according to Kpler (using the one-week MA), and the Houthis…