Renewed Hormuz Conflict Threatens Global Oil Supplies, RBC Says
Renewed fighting between the US and Iran has increased risks to global energy supplies, with tanker traffic through the Strait of Hormuz falling again and inventories likely to come under renewed pressure if disruptions persist, RBC Capital Markets strategists said in a note on Wednesday.RBC analysts said the ceasefire that followed a memorandum of understanding signed on June 17 has effectively collapsed, with commercial vessels again coming under attack and the US reinstating its blockade of Iranian ports.The analysts said there has already been a significant drop-off in exports through the Strait since fighting resumed.The bank forecast that seven-day average crude flows had fallen by about 4.6 million barrels per day, leaving average exports at about 3.9 million b/d.The International Maritime Organization said that the Hormuz is too dangerous for commercial shipping, while persistent threats from mines, missiles, drones and Iranian tolls are likely to discourage a return to normal traffic even if military tensions ease.RBC said that the latest attacks, including a fatal incident involving an Adnoc Logistics & Services vessel, are expected to reinforce caution among shipowners.The research firm estimates that the temporary improvement in Gulf exports following the memorandum created an additional 40-day buffer for global crude inventories.Middle East Gulf producers exported about 161 million barrels of crude, or about 5.8 million b/d since June 17, compared with about 75 million barrels, or 2.7 million b/d, during a comparable period before the agreement.The research firm said that the surge in exports slowed the pace of global inventory drawdowns to about 1.5 million b/d from about 2.2 million b/d previously.However, with shipping conditions deteriorating again, attention is expected to shift back to inventory levels, particularly as stocks at the US storage hub in Cushing remain near operational minimums and the Strategic Petroleum Reserve is at multi-decade lows.RBC also highlighted growing risks in the Red Sea after an exchange of missile and drone attacks between Saudi Arabia and Yemen's Houthis.Saudi Arabia has increased crude exports via its East-West Pipeline and the Yanbu terminal to around 4 million b/d to offset reduced flows through the Strait of Hormuz, making the Red Sea a critical alternative export route.The consultancy said any renewed Houthi attacks on shipping or Saudi energy infrastructure could threaten that capacity and significantly worsen supply risks.On the demand side, RBC said concerns that China's oil consumption had undergone a structural decline during the conflict may be overstated.Though Chinese refiners have curtailed operations and imports during the crisis, RBC projected that refinery margins would improve as export restrictions on products ease, potentially supporting higher crude purchases.China is also expected to continue replenishing strategic petroleum reserves when prices are attractive.Meanwhile, Ukraine's intensifying military strikes against Russian energy infrastructure are adding further strain to global fuel markets.RBC projected that about 4 million b/d of Russian refining capacity has been damaged, reducing refinery throughput to record lows and forcing Moscow to curb diesel exports.July diesel exports are expected to fall to about 110,000 b/d, down 280,000 b/d from June and 680,000 b/d from a year earlier.