The global oil market appears more localised, as the ongoing Red Sea unrest and rising freight rates have made supplies from closer-to-home more appealing, Bloomberg reported. A decline in tanker traffic via the Suez Canal is causing a division in commerce, with the North Sea, the Mediterranean, and the Atlantic Basin serving as the hub for one region, and the Persian Gulf, the Indian Ocean, and East Asia as the other. Although crude is still transported between these regions via the more expensive and time-consuming route around the southern tip of Africa, recent purchasing trends suggest a disconnect. According to dealers, some European refiners forwent buying Iraqi Basrah crude last month, preferring shipments from Guyana and the North Sea. Midway through January, spot prices in Asia spiked due to a surge in demand for Abu Dhabi's Murban crude, and flows from Kazakhstan to Asia sharply decreased. Meanwhile, according to ship-tracking data from Kpler, crude loadings from the U.S. to Asia fell by more than a third last month compared to December. Although the division is temporary, it is currently making it more difficult for import-dependent countries like South Korea and India to diversify their sources of oil supply. It restricts refiners' ability to adapt quickly to shifting market conditions and may eventually reduce profit margins. "The pivot toward logistically easier cargoes makes commercial sense, and that will be the case for as long as the Red Sea disruptions keep freight rates elevated," Viktor Katona, lead crude analyst at data analytics firm Kpler said. "It's a tough balancing act choosing between security of supply and maximising profits." Last month oil tankers transit in the Suez Canal dropped 23 per cent compared to November, according to Kepler Jan. 30 note. Liquefied natural gas (LNG) and liquefied petroleum gas saw 73 per cent, and 65 per cent drop, respectively. Product markets have been most impacted by diesel and jet fuel flows to Europe from India and the Middle East, as well as European fuel oil and naphtha going to Asia. Amid concerns that obtaining naphtha from Europe would become more difficult, Asian prices for this feedstock used in petrochemicals rose to their highest level in nearly two years last week. Refiners are being encouraged to go local whenever possible as a result of the Red Sea attacks, which are having a knock-on effect on oil prices through increased transport costs. According to Kpler, since mid-December, rates for Suezmax oil tankers traveling from the Middle East to Northwest Europe have increased by nearly half. During that time, the global benchmark Brent crude has increased by about 8 per cent. In January, traders in the market reported that the cost of oil delivered to Asia from the U.S., where production is increasing, increased by more than $2 per barrel over three weeks. "Diversification is still possible, but it comes at a higher price," Giovanni Staunovo, a commodity analyst at UBS Group AG told Bloomberg. "Unless it can be passed onto the end consumer, it would cut into the margins of refineries." It's unlikely that the Red Sea situation will result in a long-term reorganisation of oil flows, but it's also unlikely that the conflict will be resolved anytime soon. Rather, a great chance of additional disruptions exists, especially in light of the Houthi attack on a Russian fuel tanker late last month. The militant group supported by Iran had previously stated that Russian and Chinese ships would not be targeted, making that attack notable. "Geopolitics are not good for trade," Adi Imsirovic, director of consultancy Surrey Clean Energy stated. "If I was a buyer, I would be on my toes. It's a hard time for refiners, especially Asian refiners, who need to be more flexible."
