For two months, international oil and gas markets largely ignored the Israel-Hamas war as it wasn’t disrupting flows of crude oil and natural gas from the Middle East and the Mediterra.
Oil prices jumped briefly in early October before retreating to six-month lows in early December amid persistent concerns about economies and global oil demand, high natural gas inventories in the northern hemisphere, and warmer weather limiting demand for heating which has help to keep process subdued.
But markets may have been too complacent. The repercussions of the conflict in the Middle East could still impact energy markets and supply chains worldwide and drive consumer prices higher, just as we receive some positive news with UK inflation dipping to 3.9%, the lowest level in some time.
The most recent threat to global trade, including oil and products, emerged from the Iran-aligned Houthis in Yemen, who have intensified attacks on commercial vessels in the Red Sea and near its vital chokepoint, the Bab el-Mandeb Strait.
The Bab el-Mandeb Strait is a critical chokepoint for international oil and natural gas flows. The Suez Canal, the SUMED pipeline, and the Strait are strategic routes for Gulf oil and natural gas shipments to Europe and North America. Total oil shipments via these routes accounted for 12% of total seaborne-traded oil in the first half of 2023, and liquefied natural gas (LNG) shipments accounted for about 8% of worldwide LNG trade, the U.S. Energy Information Administration (EIA) said.
This year, oil flows through the Red Sea/Suez Canal route have jumped after the embargoes on Russian oil shifted Russia’s crude exports toward Asia.
As container shipping giants and oil supermajor BP halt transit via the Red Sea/Suez Canal route, Europe will be the most exposed to disrupted flows of crude and products from the Middle East and Asia, analysts say. Additionally, more maritime carriers are avoiding the Red Sea due to vessel attacks carried out by the Houthi militant group in Yemen in support of the Palestinians fighting in Gaza against Israel that have caused global trade disruptions through the Suez Canal, which handles about 12% of worldwide trade.
The US yesterday launched a multinational operation to safeguard commerce in the Red Sea, but the Houthis said they would continue to carry on attacks. Analysts say the impact on oil supply so far has been limited, as the bulk of Middle East crude is exported via the Strait of Hormuz.
However, oil prices could see a rebound "due to the geopolitical conflicts and the imminent implementation of OPEC's production cuts," said Leon Li, an analyst at CMC Markets in Shanghai, referring to the Organization of the Petroleum Exporting Countries."So a small supply gap is likely to occur in January next year, and WTI crude oil may rise to $75-$80 per barrel," he said.
The Saudi-led producer group in recent months had been rallying support to deepen output cuts and boost oil prices, but Anglola said yesterday it would leave OPEC, as its membership was not serving its interests.
Therefore, as we head into the festive period and hurtle towards 2024, the year is finishing to that of how it begun, uncertainty appears to be our only certainty as we all battle a fragile geo-political backdrop, a weak economy and rising costs.
Fuel card users can expect an increase in the region of 2 -2.5 pence per litre.
On behalf of the team at Fuelmate may we take this opportunity to wish all a very Merry Christmas and a Happy New Year!
