StonexHero

Just How Bad is the Impact of Red Sea Problems on Vessel Journey Times

StonexHero
Just How Bad is the Impact of Red Sea Problems on Vessel Journey Times
 
Harry Altham
Energy Analyst, EMEA & Asia

Brent has edged 20 cents higher this morning despite the continuing Evergrande crisis in China and the associated risks that we spoke of in yesterday morning’s report. That Brent remains significantly above $80/bbl reflects a geopolitical premium in oil markets that could ease once the U.S. response to the strike that killed three of its servicemen in Jordan becomes known. 

how large are the red sea delays?
Due to the recent escalation of tensions in the Red Sea, it is appropriate to provide an update on the extent of vessel disruption in terms of journey and arrival times. Yesterday, the Port of Barcelona declared that they were experiencing a 10-15 day delay to vessel arrivals (key for LNG), and we wanted to run some tests to see how this stacked up against a model for oil and product vessels, as well as realised journey times. This reflects journey times into the key trading hub of the ARA region, specifically using Rotterdam as the reference port. 
We need to make a few assumptions. First, we have selected the use of an Aframax vessel, because it is the most commonly used vessel to pass through the Suez Canal and because it is large enough in fuel capacity to circumnavigate Africa (the larger Suezmax and some VLCCs are also possible vessel types). Then, using freight data, we take an average Aframax vessel speed; we have used the midpoint of the six-month global average Aframax speed of 11.76 knots and the trailing two-week average of 11.85 knots, giving us an 11.81 knot average speed. We also add 1.5 days to Suez Canal journeys to account for the typical wait times to enter the canal in the Gulf of Suez. 
The net result is that journey times between Rotterdam and Singapore have increased by around 11 days, while journey times between Ras Tanura (Saudi Arabian Persian Gulf) and Rotterdam have increased by close to 16 days. Given that these two routes pass between the Indian Ocean’s two key choke points (Straits of Hormuz and Straits of Malacca (not factoring in the Bab-el-Mandeb, which is the problem area that charterers are avoiding)), all journeys originating either in the Persian Gulf or anywhere East of Arabia will be impacted within that 10-16 day range. This can rise to as many as 20 if the final destination is in the Mediterranean Sea.
Naturally, such a large increase in vessel times at sea make trading these routes significantly less profitable. The 10-20 days of additional fuel, labour and insurance costs are dissuading flows from the Middle East into Europe; crude oil arrivals from the Middle East in January (18M bbl) have fallen by around 28% since November 2023. Amid damp demand, the Brent squeeze this has caused is becoming a pressure point for European refiners – and it is them who are most feeling the heat. This is particularly relevant because China has ramped up Middle East crude purchases due to recent disputes with Iran over the prices of its oil exports, meaning that the barrels that are heading to Europe are under increasing competition. 
Moreover, China has resumed buying from one of Europe’s most obvious, non-Suez dependent places of origin: Angola. This constriction on supplies into extends to diesel; imports from India are expected to fall to their lowest level in two years; collapsing by a giant 80% m/m to just 50k bbd as the higher costs have closed the India-to-Europe arbitrage. It is this mechanism that has been tightening the European middle distillate markets in the past couple of weeks, and it is unlikely to get significant respite until those cargoes can flow more easily again.
Related tags: Energy

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI . StoneX is a trading name of StoneX Financial Ltd (“SFL”). SFL is registered in England and Wales, Company No. 5616586. SFL is authorized and regulated by the Financial Conduct Authority [FRN 446717] to provide to professional and eligible customers including: arrangement, execution and, where required, clearing derivative transactions in exchange traded futures and options. SFL is also authorised to engage in the arrangement and execution of transactions in certain OTC products, certain securities trading, precious metals trading and payment services to eligible customers. SFL is authorised & regulated by the Financial Conduct Authority under the Payment Services Regulations 2017 for the provision of payment services. SFL is a category 1 ring-dealing member of the London Metal Exchange. In addition SFL also engages in other physically delivered commodities business and other general business activities which are unregulated and not required to be authorised by the Financial Conduct Authority. StoneX Group Inc. acts as agent for SFL in New York with respect to its payments services business. StoneX APAC Pte. Ltd. acts as agent for SFL in Singapore with respect to its payments services business. ‘StoneX’ is the trade name used by StoneX Group Inc. and all its associated entities and subsidiaries.

 

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. Past performance of any futures or option is not indicative of future success. Indicators are not a trading system and are not published as a specific trade recommendation. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

 

© 2024 StoneX Group Inc. All Rights Reserved.



Discover more insights

Our subscribers have access to comprehensive market analysis from StoneX spanning commodities, equities, currencies and more.
See why StoneX is a partner of choice
StoneX: We open markets

Our market expertise, advanced platforms, global reach, culture of full transparency and commitment to our clients’ success all set us apart in the financial marketplace.

  • Partnership icon
    Globality

    With access to 40+ derivatives exchanges, 180+ foreign exchange markets, nearly every global securities marketplace and numerous bi-lateral liquidity venues, StoneX’s digital network and deep relationships can take clients anywhere they want to go.

  • Price tag
    Transparency

    As a publicly traded company meeting the highest standards of regulatory compliance in the markets we serve; our financials and record of accomplishment are matters of public record. StoneX’s commitment to “doing the right thing over the easy thing” sets us apart in the industry and helps us build respect, client trust and new partnerships.

  • PC Monitor Blue
    Expertise

    From our proprietary Market Intelligence platform, to “boots on the ground” expertise from award-winning traders and professionals, we connect our clients directly to actionable insights they can use to make more informed decisions and achieve their goals in the global markets.

+
!

By submitting this form, you are sending StoneX Group Inc. and its subsidiaries your personal information to be used for marketing purposes. View our  Privacy notice  to learn more.

+
!

By submitting this form, you are sending StoneX Group Inc. and its subsidiaries your personal information to be used for marketing purposes. View our  Privacy notice  to learn more.