Persian Gulf tensions raise stakes for oil, shipping markets

Ongoing tensions in the Persian Gulf have left ship operators in the region wary of passing through the chokepoint, the Strait of Hormuz, and heightening geopolitical risks in the oil market.

On Thursday morning the UK’s Ministry of Defence said three Iranian vessels ‘attempted to impede the passage’ of the British Heritage as it exited the Gulf. Iran’s Revolutionary Guards have denied responsibility, according to the Fars news agency.

The incident follows comments by a senior Iranian official last week that Iran should seize a British tanker in retaliation for the arrest of the Grace 1 in Gibraltar last week, allegedly carrying Iranian crude to Syria. The key oil and shipping artery, the Strait of Hormuz, and regional hub Fujairah have been under the spotlight after a number of attacks on oil tankers in the region.

TRADE FLOWS
**An average of 20.7 million b/d of oil passed through the Strait of Hormuz last year, according to the EIA, up from 20.3 million b/d the previous year.

**Crude and condensate flows through the strait averaged 17.3 million b/d in 2018, while refined product flows averaged 3.3 million b/d, according to the EIA. LNG flows averaged 4.1 Tcf/year.

**Oil shipments through the strait have continued as normal since tanker attacks in May and June, though insurance rates have soared and bunker demand at Fujairah has declined.

**Marine fuel sales at the Port of Fujairah are estimated to have dropped about 16% quarter on quarter in Q2, 2019, as continued tensions in the Middle East after the recent tanker attacks in the region weighed on market sentiment, industry sources told S&P Global Platts this week.

**Fujairah is among the world’s top bunkering hubs and lies outside the Strait of Hormuz, which handles about 30% of the world’s seaborne crude. Bunker sales volumes at the Port of Fujairah were around 1.6 million mt in the second quarter, compared with about 1.9 million mt in the first, according to sources

PRICES
**ICE Brent crude futures rose after the news about the British Heritage was announced on Thursday morning. The September contract traded as high as $67.65/b, 64 cents/b higher than Wednesday’s close.

**BP has not disclosed to market participants whether it will halt sending ships to the Persian Gulf due to ongoing security concerns, shipping sources said.

**”Basically, all owners will put their vessels on alert and give them some best practice guidelines while transiting the Strait of Hormuz or passages close to Iran,” a broker said.

**The British Heritage had been chartered by Shell last week to load a 140,000 mt crude cargo at Basrah on July 5-7 for delivery to Northwest Europe or the Mediterranean, but shipbrokers told S&P Global Platts Monday the booking was cancelled. The tanker left the Persian Gulf without a cargo.

INFRASTRUCTURE
**Only Iran and Saudi Arabia have alternative access routes to maritime shipping lanes. Saudi Arabia has access to the Red Sea via Yanbu port, where its King Fahd crude export terminal has a loading capacity of 6.6 million b/d.

**Yanbu port is served by the 4.8 million b/d Petroline (East-West Pipeline), which has been pumping around 1.9 million b/d, leaving spare capacity of 2.9 million b/d, according to the EIA.

**The UAE operates the 1.5 million b/d Abu Dhabi Crude Oil Pipeline (Habshan-Fujairah), which has been pumping around 500,000 b/d, leaving spare capacity of 1 million b/d, the EIA said.
Source: Platts