Vitol chief executive Russell Hardy warns that a shortage of tankers, not crude supply, is now the main threat to oil markets after seven months of Middle East conflict. He says the shipping squeeze could send prices to $200 a barrel if the flow of oil out of the Gulf breaks down, even as Brent trades below $98.
Tanker shortage replaces crude shortage
The energy crisis triggered by the Middle East conflict has entered a new phase, according to Vitol chief executive Russell Hardy. More crude is now leaving the Gulf, but a shortage of ships to move it has become the latest bottleneck.
Hardy told the Energy Intelligence Forum in London that the conflict started as a crude crisis, turned into a product crisis, and has now become a shipping crisis. He added that tanker charter rates have become sharply higher and that refineries are now suffering as a result.
Why $200 oil is back on the table
Hardy estimated that roughly 12mn barrels of crude a day and 2mn barrels of refined fuels are now making it out of the Gulf after the US Navy cleared a route for tankers through the Strait of Hormuz. Keeping that flow moving matters because the seven-month conflict between the US, Israel and Iran has run down stockpiles of crude and refined fuels.
According to the FT: "Without it, you do have that $200-a-barrel scenario, so it is pretty important it continues," Hardy said, noting there are no more inventories left to drain in the West. The current system relies on one set of tankers shuttling through the Strait of Hormuz past Iranian attacks, then transferring cargoes to a second group of ships waiting in the Gulf of Oman — a method Hardy described as very inefficient since vessels sit idle for days or weeks at a time.
Freight costs squeeze refiners unevenly
The increased flow out of the Gulf has eased pressure on benchmark prices, with Brent crude trading below $98 a barrel in London on Tuesday. Yet the resulting shortage of available ships has sent freight rates soaring, making it harder for traders and refiners to calculate the delivered cost of crude.
Refiners unable to secure ships, or unwilling to pay the higher rates, are competing instead for cargoes that are easier to deliver. One oil executive said cargoes of North Sea oil sold for $145 a barrel last week. European refiners have been hit hardest, with refining margins recently turning negative. Margins in the US, where refiners have ready access to domestic crude, remain above $70 a barrel, according to LSEG data. As European refineries struggle to turn a profit, they are likely to cut production, intensifying supply problems for fuels such as diesel.
Hardy said the export of crude oil and fuel from the Middle East remains an important lifeline, with most of the crude bound for Asia. He added that the market remains elevated because there is still no obvious solution to the situation in front of it.
Source: FT (Markets)
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