The threat of attacks by Yemeni Houthis on vessels crossing the Red Sea have added 100,000 bpd to global oil demand as ships choose to divert to a longer route around Africa.
This is according to the chief executive of commodity trading major Vitol, Russel Hardy, who said that “We have had to re-orientate so much all over,” because of the crisis.
Speaking at a panel at CERAWeek, as quoted by Reuters, Hardy noted that because of the situation in the Red Sea, the total distance traveled by ships now is about 3% more than it was before the Houthis began to attack vessels in the Red Sea.
Analysts have been warning that the diversion of ship traffic from the Suez Canal to the Cape of Good Hope would tighten oil markers as it adds more than a week to the average journey between Asia and Europe.
Earlier this year, one unnamed expert told Reuters that the rerouting had increased demand for oil by 200,000 barrels daily. This was also one reason why the International Energy Agency revised its oil demand outlook higher in its latest Oil Market Report.
Calling the development “unexpected”, the IEA wrote that demand for oil was seen rising 1.7 million bpd in the first quarter of the year, “on an improved outlook for the United States and increased bunkering.”
The oil market generally dismissed the effect that the situation in the Red Sea was having on oil demand, focusing on OPEC’s spare capacity, boosted recently by collective output cuts. However, the mood is beginning to change as the cuts get extended and Russian supply gets squeezed from Ukrainian drone attacks on refineries.
With threats to supply elsewhere, the additional demand that the Red Sea situation may attract more attention and possibly serve to help oil climb higher still as there seems to be no resolution to it in sight for the time being.
By Irina Slav for Oilprice.com
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