Shipping in wait and see mode as Iran and Israel conflict continues
TANKER rates have spiked, along with the forward curve on contracts, and fixtures to load from the Middle East Gulf have slowed to a trickle, but loadings and tanker movements remain largely unaffected by the continued conflict between Israel and Iran.
Both Israel and Iran conducted several missile attacks over the weekend with oil-related infrastructure hit in the crossfire. On Sunday, Iran’s Shahr Rey refinery, responsible for around 250,000 barrels a day, and the Abadan refinery (400,000 bpd) were hit, along with the Shahran oil depot in northern Tehran. It is not yet clear how significant the damage is.
In Israel, the Haifa refinery, which supplies about 60% of domestic consumption, was damaged.
For the moment, however, the impact on shipping operations remains relatively limited.
“Short-run risk aversion is evident in freight and oil markets following Israel’s attack on Iran,” noted Oil Brokerage in it’s latest report issued Monday morning.
Nevertheless, oil trades have continued largely undisturbed in the Middle East Gulf.
Despite the turmoil in the region, loadings in the Gulf and transits of the Strait of Hormuz have continued over the weekend, including loadings from Kharg Islands. The only difference is that tankers that are waiting to load in Iran keep a greater distance from port, according to Fearnleys brokers.
The TD3 benchmark rate, for a VLCC moving oil from the Gulf to Japan, rose over 20% week on week on Friday given the increased risk premium, but traffic is so far unaffected, according to Lloyd’s List Intelligence vessel tracking data.
Forward freight agreements have moved up across the curve. Third-quarter TD3 contracts are up 9%, and 3Q TC5 is up 12%. Contracts for 4Q are up 6% and 8%, respectively, for the routes.
According to Anoop Singh, global head of shipping research at Oil Brokerage, owners are holding off on fixing to load from the Middle East Gulf meaning that Iranian oil exports will likely fall sharply in the weeks ahead.
Iran, meanwhile, has asked ships to leave terminals and ports as a de-risking measure.
“That means Chinese buyers will likely consume from elevated stocks, dropping them to levels that are less bearish for future imports,” noted Singh.
Despite the sharp rise in rates in the immediate aftermath of the Israeli attacks and Iranian counter-attacks, further gains in freight rates are, for the moment, expected to be limited as traders, shipbrokers and charterers take a wait-and-watch stance.
Oil prices were stable despite a weekend of missile attacks. The region accounts for a third of the world’s production, but analysts said there had been no impact yet on exports of oil and gas from the Middle East through the Strait of Hormuz.
Security analysts from across the industry continue to view any closure of the Strait of Hormuz to be an extreme scenario that is unlikely, despite a strong media narrative and rhetoric from Tehran suggesting that it remains a possible outcome.
The Joint Maritime Information Center, an international naval task force monitoring the area, warned on Sunday that there were instances of “extreme jamming” of signals from the Iranian port of Bandar Abbas.
According to the UK Maritime, several reports have been received from ships warning that electronic interference within the waters of the Gulf and the Strait of Hormuz has increased significantly. The intensity of that activity is having an impact on ships AIS signals.
“Overall, we continue to have the same view as prior to the weekend; higher risk premiums and owners reluctant to fix in the Middle East Gulf could lead to upside risk on rates. Apart from this, the conflict has limited impact on tanker fundamentals for now,” said Fearnleys on Monday morning.
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