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Impact on Commodities Due to Chaos in the Red Sea – Canadian Energy News, Top Headlines, Commentaries, Features & Events

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Data from S&P Global showed the Suez Canal route accounts for 14.8% of all Europe and Middle East and North Africa (MENA) imports. In response, some shipping companies have instructed vessels to instead sail around southern Africa, a slower and therefore more expensive route.

According to shipping data provider AXSMarine, the number of tankers in the Suez canal fell over 50% in the week starting Jan. 15 compared to the previous week.

Early indications suggest ocean freight shipping rates are set to increase further in early February amid the ongoing crisis, according to data released by freight platform Xeneta.

It further showed that rates from the Far East to North Europe are set to rise by 8% by Feb. 2, with a market average of $5,106 per Forty foot equivalent unit (FEU), which is an increase of 235% since mid-December.

Below are likely impacts on different commodities:

OIL AND GAS

Energy markets remain the most vulnerable to the ongoing attacks as almost 12% of the total oil trade via sea goes through the Red Sea, sending oil prices above $80 per barrel.

As much as 8.2 million barrels per day (bpd) of crude oil and oil products traversed the Red Sea in the January-November period of 2023, according to analytics firm Vortexa.

“Heightened geopolitical risk, including the recent shipping disruptions, will maintain the oil price premium,” Fitch Ratings said in a note.

“However, without material disruptions to actual oil production, or a wider escalation of attacks to more vital oil transport routes in the region, we do not expect a strong upside to our $80/bbl Brent price assumption for 2024.”

Oil majors BP and Shell paused all transits through the Red Sea while Norwegian oil and gas firm Equinor had rerouted vessels that had been heading towards the Red Sea.

Around 16.2 million metric tons (MMt), or 51% of LNG trade, flowed from the Atlantic Basin east through the Suez Canal last year, while 15.7 MMt went through the canal from the Pacific Basin west, according to S&P Global Commodity Insights.

Qatar, one of the world’s biggest liquefied natural gas (LNG) exporters, hasn’t shipped any LNG cargoes to Europe via the Red Sea since Jan. 14 and at least five Qatar cargoes heading to Europe are currently taking the long-way route through the Cape of Good Hope, as per LSEG data.

Asia’s naphtha markets gained further after a naphtha tanker owned by Trafigura was hit by attacks in the Red Sea over the weekend, adding to supply disruption fears in the region, traders said. The crack jumped by about $16 to $118.63 per metric ton over Brent crude, after rising about 19% last week on Russian supply disruption worries.

AGRICULTURE

Grain cargoes are also being diverted due to the conflict.

Wheat shipments via the Suez Canal fell by almost 40% in the first half of January to 0.5 million metric tons due to attack, the World Trade Organization said on social media platform X.

Robusta coffee futures on the ICE exchange have risen 9% so far this year and hit their highest price in at least 16 years last week as traders in top producer Vietnam scramble for supplies amid an escalating crisis in the Red Sea.

Attacks on commercial vessels in the Red Sea have delayed robusta shipments to Europe from not only Vietnam, but also key suppliers like Indonesia and India.

MINOR METALS

China and other Asian countries are critical minor metals exporters to Western countries.

Antimony prices have hit their highest since September 2022 as European and U.S. buyers grapple with delayed Asian shipments of the metal used in batteries and semiconductors owing to disruptions on the Red Sea route.

Traders noted further escalation could disrupt supplies of other minor metals, such as bismuth, manganese elect 99.7 and ferrochrome, from Asia to Western countries.

SUNFLOWER OIL

India’s sunflower oil imports are set to decline in coming months as a rally in prices, driven by a surge in freight rates, is prompting buyers to shift to rival vegetable oils available at a discount, traders told Reuters.

India, the world’s biggest sunflower oil buyer, procures most of its imports from the Black Sea region via the Red Sea.

DRY BULK

Australian mining giant BHP Group said that the disruptions are forcing some of its freight service providers to take alternative routes, but noted that majority of it shipments do not go through this route.

Some 320 million tons of bulk commodities sail through the Suez Canal and through the Red Sea, accounting for 7% of global dry bulk trade, Gerard Ang, BHP’s head of maritime iron ore, said at an industry conference.

Source: Company statements, Reuters articles, Research notes

(Reporting by Ashitha Shivaprasad and Brijesh Patel in Bengaluru)

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