Although oil prices have ticked up in recent days, the Iranian attacks on vessels in the Strait of Hormuz, and the effective Houthi blockade of any Saudi Arabian vessels from crossing the Bab al-Mandab strait at the entrance to the Red Sea do not seem to have had any significant effect on oil price expectations, leaving some observers puzzled.
In fact the Middle Eastern oil producers have been shuttling large volumes of crude out of the Persian Gulf, undetected, transferring the barrels onto tankers in the Gulf of Oman. Iran is hitting some vessels, but only a fraction of those which are shuttling back and forth.
Insurers say that they’re seeing a steady stream of requests for business from a range of Gulf producers, too.
These incognito crossings are one of the major substitutions taking place globally that have reduced the importance of the old “standard” traffic of 130 vessels a day through the Strait of Hormuz. Other factors have been increases in crude exports from Venezuela and the US, pipeline substitutions and land-based transits.
That said, the situation remains far from normal. Tracking how much oil the “dark” (but not shadow fleet or dark fleet) ships are moving though the SoH has been a challenge for traders and analysts alike. And not many people are talking about it. Some market estimates had been 4m barrels a day, which would be a couple of VLCCs, but now there are rumours that the volumes could be much higher. Before the Iran war 100m barrels a week crossed Hormuz. Last week, US Energy Secretary Chris Wright claimed that 9m bpd crossed Hormuz over the previous seven days. That would be close to 60% of pre-war rates. Throw in the pipeline substitutions and extra supplies from elsewhere in the world, and some continuing stockpile releases, there would be no shortage of oil at all for the rest of the year.
The embattled shipments are one of the reasons that Brent oil futures have spent much of August trading between $80 and $90 a barrel, traders and analysts say. That’s far from the most alarming levels foreseen at the onset of the conflict if the Iran war lingered through the summer. Some were bracing for $150 oil.
In addition to the UAE, barrels from Iraq, Qatar and Kuwait have all been ferried through Hormuz, according to vessel-tracking data compiled by Bloomberg, as well as Kpler and Vortexa data.
The detective work needed to establish the oil situation involves some reverse engineering – one is the price of oil on the market. Just as a shortage of supply can predict a price movement, so a lack of price movement can indicate that there is no shortage of supply.
Meanwhile, outside the Strait of Hormuz off the coast of Oman there have been around 150 ships from giant oil tankers to bulk commodity carriers floating. That compares to just 40 in January. There had been speculation that this increase was in anticipation of a peace deal. Now the explanation is that they are waiting for cargo transfers from the vessels that are sailing in and out of Hormuz with their transponders turned off.
Meanwhile Abu Dhabi’s ADNOC has already sold about 135 million barrels of crude to buyers across the world and last week it issued another round of sales.
The current situation has also generated some negative response. Seafarers have died as a result of attacks, and the assertion is that shipowners and other stakeholders in the oil supply sector were putting profit above human lives. Since the beginning of the conflict in March 23 of ADNOC’s vessels have been attacked while transiting Hormuz, resulting in one fatality and 20 injuries to crew members, the company said. “An attack on the infrastructure that keeps energy flowing is not simply an attack on a company,” it said. “The disruption in the Strait of Hormuz is inflicting profound damage far beyond those directly impacted in this region.”
There have also been two oil spills, one of them serious.
The other major suppliers in the region have also been adapting. Two ships were seen loading at Saudi Arabia’s Ras Tanura export hub in the Persian Gulf last week. Saudi tanker company Bahri has been positioning vessels off Oman’s coast, where the transfers from shuttling vessels are carried out. There were 16 supertankers there at the end of last week and with three more are scheduled to arrive soon. Collectively they can carry 38m barrels and the logical assumption would be that this is the amount that they intend to pick up and deliver elsewhere in the world.
Oil producer Saudi Aramco declined to comment. Bahri didn’t respond to a request for comment.
Iraqi barrels are also being shuttled out of Hormuz.
According to Bloomberg, as well as Kpler and Vortexa data, cargoes from Qatar and Kuwait have also left Hormuz under shuttling arrangements.