How will the Red Sea shipping crisis affect the global oil and gas market?

Since the outbreak of the current round of Palestinian-Israeli conflict, the Houthi armed forces have continuously increased their attacks on merchant ships in the Red Sea. Following the suspension of several container shipping giants on the Red Sea-Suez Canal route, BP and Statoil of Norway also announced that they were avoiding the route. As the "artery" of global shipping, the Red Sea - Suez Canal faces the risk of "closure" under the influence of the Palestinian-Israeli conflict, which will further disrupt global trade and drag down the recovery of the global economy.

In a statement to The New York Times and several other international media outlets on Dec. 18, BP said it had decided to temporarily halt all transit through the Red Sea because of the deteriorating safety situation for shipping in the Red Sea. Statoil also told CNBC that it had chosen to reroute in the area. According to Reuters, Frontline, a large oil tanker shipping company, also announced that it would not travel.

Recently, a number of merchant ships were attacked by Yemen's Houthi armed group while passing through the Red Sea, a major traffic route between Europe and Asia. According to reports, the attack was related to the recent round of Israeli-Palestinian conflict, and the Houthis claimed to attack only Israeli-related vessels.

According to shipping consultancy Clarkson, 23 percent of vessels passing through the Red Sea-Suez Canal so far in 2023 have been tankers, with another 6 percent and 2 percent of traffic coming from liquefied natural gas (LNG) carriers and liquefied petroleum gas (LPG) carriers, respectively.

The impact of the shipping crisis on the international oil and gas market is therefore of concern.

Brent crude futures in London are up more than 2 percent in five days. On December 18, Brent crude oil jumped as high as $79.3 per barrel before falling back to around $78 per barrel. The European benchmark price of natural gas TTF also rose 5.38% on the 18th, breaking through 35.522 euros per megawatt, and then fell.

"WTI crude oil prices gave up most of their gains by the end of the day, indicating that the impact on the oil market was short-lived." Energy data service provider gold Lianchuang analysts on the interface news and other media analysis said.

Jin Lianchuang believes that the recent trend of international oil prices is still mainly affected by macroeconomic and supply and demand fundamentals. Recently, Opec + production cuts are diverging and crude oil demand is weak, and international crude oil prices have room for further decline.

"The European gas market remains very sensitive to supply-side disruptions." Xiong Wei, senior analyst of natural gas and LNG market at Rystad Energy, an energy consulting company, told Interface news that the current European benchmark price of natural gas TTF has not risen much, and it has declined after the opening on December 19, indicating that natural gas consumption in major regions is relatively weak. The boost to gas prices is unlikely to last.

According to an analysis by the U.S. Energy Information Administration (EIA) in early December, 9.2 million barrels of oil a day were transported through the Red Sea-Suez Canal in the first half of this year, equivalent to 9% of recent global daily oil demand. The volume of liquefied natural gas (LNG) transported through the route accounts for about 8% of the total global LNG trade.

S&p Global, citing its ship-tracking data, said more than 135 crude oil, petroleum products, chemicals and liquefied natural gas tankers were still passing through the Suez Canal and the Red Sea as of noon on Dec. 18, 85 of them fully loaded.

In the first half of this year, nearly half of the oil trade volume on these routes came from northbound shipping, mainly from oil-producing countries in the Middle East, India and other places to Europe; The southbound oil trade is mainly exported from Russia and other places to India, China and other Asian regions.

As a result, the current shipping crisis mainly affects the oil and gas supply in Europe.

In the oil market, some oil traders told the Wall Street Journal that compared with the crude oil market, the shipping crisis has a greater impact on the refined oil market such as diesel and gasoline, because Europe has stopped importing refined oil from Russia since the beginning of this year, and imports of refined oil products from the Middle East, India and other places have increased significantly.

EIA data show that in the first half of this year, the European region imported nearly 3.5 million barrels per day of petroleum products from the route, equivalent to about 18% of total daily consumption in Europe.

European oil companies such as BP may also switch to the Cape of Good Hope after avoiding the Red Sea route.

According to Clarkson Research, the voyage from the Cape of Good Hope will increase from 31 days to 40 days. And the current shipping market is in the annual long tariff negotiations, liner companies may take the opportunity to raise prices. Mr Clarkson said tanker rates in the Mediterranean had risen 9 per cent on 18 December.

On December 19, the US Secretary of Defense announced that the United States has formed a multinational military force with Britain, Canada, France and other countries to protect commercial vessels transiting the Red Sea. In response, the Houthi armed group said it would not stop relevant attacks.

The international community urgently needs to promote peace talks, promote ceasefire and cessation of hostilities between Palestine and Israel, urge all parties to abide by international law and international humanitarian law, and make efforts to implement the "two-state solution". All parties should avoid pouring fuel on fire, so as to fundamentally resolve the cycle of Palestinian-Israeli conflict and jointly cool down the situation in the Red Sea.