Logistics Middle East – August 2019

http://www.logisticsmiddleeast.com LOGISTICS MIDDLE EAST | AUGUST 2019 39

SHIPPING | ANALYSIS

UK have upped their^ The United States and

naval presence in the region in recent weeks.

sent. Red Sea loadings would increase almost immediately
as Saudi Arabia would maximise the export volumes they
could send through their port facilities.
US crude exports which continue to debottleneck would
surge upwards as pricing differentials would encourage
more exports, and more west African barrels would be
brought online. A likely outcome would be an immediate
relaxation on the Venezuelan sanctions, which have a more
discretionary basis for their implementation, so the Aframax
trade in the Caribbean could see a surprise resurgence.
Putting aside other sources of crude oil, the next step is
to look at the destination for most Middle East Gulf VLCC
exports. Countries in the far east dominate the destinations
for VLCC cargoes out of the Arabian Gulf.
Oil flows to Asian refiners and India would be disrupted.
This would reduce refinery crack spreads in these coun-
tries, discouraging runs. There would be some demand
destruction as a result of price increases, but the markets

these refineries support would seek refined oil products

from other regions, which would benefit US and European

refiners who have easier access to Atlantic Basin trades.

Rising tensions could spur renewed interest in some off-

shore projects outside the Arabian Gulf, and producers

may seek to optimise production from offshore locations

depending on the severity of the conflict. Regardless, the

increased probability of supply disruptions will nudge the

dial on some investment decisions towards yes.

Market effects

The main result would be higher oil prices, resulting in

lower demand for oil products in the short and medium

term. Producers outside the Arabian Gulf would see the

greatest benefit, particularly in the US, West Africa, and

Brazil. These markets see more smaller crude carriers such

as Suezmaxes and Aframaxes due to port limitations, but

we would expect many VLCC ballasters to head to West

Africa, Brazil, and the US Gulf.