By Florence Tan, Mohi Narayan and Ron Bousso
SINGAPORE/NEW DELHI/LONDON (Reuters) - To avoid the Red Sea, the supertanker Grand Bonanza set out early this month on a roughly 40-day journey carrying 1.8 million barrels of Abu Dhabi crude for TotalEnergies (LON:TTEF) from the United Arab Emirates all the way around Africa to France.
The trip will take at least two weeks longer than the normal route via the Suez Canal, and at about $5.7 million, will cost nearly 80% more, according to estimates by a shipping source and data from LSEG and Kpler.
The French oil giant's booking of the Grand Bonanza illustrates how attacks by Yemen-based Houthi forces on Red Sea shipping, which had mostly affected container shipping, are now driving up costs and disrupting global oil trading.
A strike last Friday on a Trafigura-chartered fuel tanker underscored the risk.
Energy producers and traders are weighing the higher prices of longer voyages around the Cape of Good Hope and using larger crude tankers to manage costs and risks, while buyers are demanding discounts to compensate for higher freight and war risk premiums.
Shippers are revising routes and refuelling points and accelerating cruising speeds, which burns more fuel and increases emissions.
"Unless the Red Sea disruption eases quickly, we should see some significant increase in the cost of delivered crude," said Stefano Grasso, a portfolio manager at 8VantEdge in Singapore.
European refiners are hurt by the increased shipping times that are driving up costs for their crude, but their margins are supported by a drop in competing product imports from the Middle East and India, traders said.
Longer travel times have tightened tanker supply, affecting shipments of naphtha from Europe to Asia and diesel from the east to Europe, they said.
"The recent rise in clean freight rates is boosting the prices of refined products in net importing regions, including diesel in Europe, naphtha and fuel oil in Asia, and gasoline in the U.S.," Goldman Sachs (NYSE:GS) analysts said in a Jan. 29 note.
U.S. refiners benefit as they can send fuel products to Europe to replace supply from the Middle East, said Mukesh Sahdev, head of oil trading at consultancy Rystad Energy, just as the U.S. did with natural gas, replacing Russian supply after Moscow's invasion of Ukraine.
"The recent Red Sea attacks pose both a threat to EU refined products imports and an opportunity for the U.S. refining system to again fill the gap," he said.
EAST-WEST SPLIT
For European refiners buying Iraq's Basrah oil, rising import costs are dampening demand in the first quarter, traders said.
Costs to charter 1 million barrel-capacity Suezmax ships to send Iraqi oil to Mediterranean refineries have climbed by $2.50-$3.50 a barrel for freight, while insurance has roughly tripled to between 10 and 15 cents a barrel, according to a trader with a European refiner.
Volumes of Iraqi crude heading to Europe have declined also because in the current backwardated market, where near-term oil prices are higher than those in future months, cargoes lose value over the extra 20 days the ship is on the water.
In the other direction, sellers of Kazakhstan's CPC Blend crude to Asia are offering cargoes on Very Large Crude Carriers (VLCCs) via Africa instead of smaller Suezmax ships for economies of scale, traders said, although no deals have been struck yet for May arrival cargoes.
One deterrent is that VLCCs, which can carry up to 2 million barrels, are too big to dock at Russia's Novorossiysk port where CPC Blend is exported, which means cargoes must be transferred from smaller tankers to VLCCs, incurring additional costs.
"I can see the market creating a clear east/west split. Basrah stays east, CPC stays west," a person involved in CPC oil trading said.
RIPPLE EFFECTS
Meanwhile, TotalEnergies has provisionally chartered VLCC Amphion to load crude from Fujairah to the United Kingdom on Feb. 6-7, a shipping source said. The charter comes with the option of going via the Cape of Good Hope at about $6.4 million or via Suez at about $3.7 million.
TotalEnergies declined to comment.
Tight ship supply is now hitting the Asian market. Last week, freight rates for a long-range (LR) tanker capable of carrying 670,000 barrels of diesel from South Korea to the UK jumped at least 30% to more than $6 million, data from SSY Tankers showed.
That in turn has pushed up rates for smaller medium-range tankers by 20% for intra-Asia routes.
"We are seeing at least 70 tankers diverting to transiting via the Cape of Good Hope since the U.S.-led strikes began on 12 Jan.," Vortexa analyst Serena Huang said, adding that more are expected to be diverted with the escalation of tensions between the Houthis and U.S.-led forces.
Rising freight and insurance costs, meanwhile, are constraining diesel and jet fuel shipments from Asia and the Middle East to Europe, traders said. Diesel shipments from India to Europe slumped roughly 80% in January, Kpler data showed.
A 50% jump in freight costs has likely shut opportunities for European refiners to export naphtha to Asia, traders said.
Adding to disruptions in global trade are recent attacks by Ukraine on refineries and a major fuel terminal in Russia, which are set to reduce exports from there, they added.
That has spurred more buyer enquiries for Middle East supplies to Asia, causing a 60% spike in freight rates for LR tankers that can carry 650,000 barrels of naphtha to around $5 million to $6 million, traders said.