The global energy crisis triggered by the Middle East conflict has entered a new phase because of a shortage of tankers to move crude around the world, according to the head of the world’s largest independent oil trader.
Vitol chief executive Russell Hardy said that while more oil was now flowing out of the Gulf, there was a fresh bottleneck as buyers struggled to secure ships.
“We started this conflict with a crude crisis. Then it turned into a product crisis. Now we have more crude oil coming out of the Middle East, but it is turning into a shipping crisis,” he told the Energy Intelligence Forum in London.
“There is really not quite enough shipping to go around,” Hardy said, adding that the price for chartering a tanker had become “pretty parabolic” and that refineries were now suffering.
Hardy estimated that roughly 12mn barrels of crude a day and 2mn barrels of refined fuels were now making it out of the Gulf after the US Navy cleared a route for tankers to shuttle in and out of the Strait of Hormuz.
Maintaining this flow was critical to preventing a new surge in oil prices, he said, because the seven-month conflict between the US, Israel and Iran had now run down stockpiles of crude and refined fuels.
“Without it, you do have that $200-a-barrel scenario, so it is pretty important it continues,” he said. “There aren’t any more inventories to drain in the west.”
The system relies on one set of tankers shuttling through the Strait of Hormuz, running the gauntlet past Iranian attacks, before transferring their cargoes to another group of ships waiting in the Gulf of Oman.
The increased flow of oil has eased pressure on benchmark oil prices, with Brent crude trading below $98 a barrel in London on Tuesday.
But the method was also “very inefficient”, according to Hardy, since ships are tied up waiting for cargoes for several days or weeks at a time, reducing the pool of tankers available elsewhere.
The resulting shortage has sent freight rates soaring and made it increasingly difficult for traders and refiners to calculate the delivered cost of crude.
“It is creating a lot of stress for everybody because nobody really knows, to the nearest $2, $3, $4 [a barrel], how much their shipping costs are going to be,” said Hardy. “That creates a difficult set of decisions for people to make day to day.”
Refiners unable to charter ships, or unwilling to pay sky-high rates, are aggressively competing for supplies that are easier to deliver. One oil executive said cargoes of North Sea oil were selling for $145 a barrel last week.
European refiners have been particularly hit by high crude and freight costs, with refining margins, the return from processing crude into fuels, recently turning negative. Margins in the US, where refiners have ready access to domestic crude supplies, remain above $70 a barrel, according to data from LSEG.
As European refineries struggle to make money, they are likely to cut back production, intensifying the supply problems around fuels such as diesel.
“It is very difficult to maintain this situation and that is why the market remains elevated because there is still no obvious solution in front of us,” said Hardy, although he noted that the export of both crude oil and fuel from the Middle East would help alleviate the problems.
“It is an important lifeline,” he said. “Most of the crude oil is going to go to Asia. The crude that has been coming out is finding homes and will be run in November and December and produce products for the markets across the winter period.”