Key Takeaways
- Physical crude oil prices in the Middle East, Europe, and Africa reached two-month highs.
- Supply disruptions due to conflicts in Iran and Ukraine led to increased premiums for Middle Eastern grades.
- Kazakhstan reduced its oil production following suspected Ukrainian drone attacks.
The price of physical crude oil cargoes in the Middle East, Europe, and Africa surged this week, reaching two-month highs. According to LSEG data, global oil price benchmark dated Brent hit $105.70 per barrel on Thursday, its highest since late May and breaching $100 for the first time since early June.
These increases were driven by supply disruptions linked to ongoing conflicts in Iran and Ukraine. The collapse of a preliminary U.S.-Iran peace deal and increased disruption through the Strait of Hormuz have exacerbated the situation. Tamas Varga, an oil broker at PVM, stated: 'Supply considerations are once again at the forefront of thinking.'
In addition, Yemen’s Houthis attacked tankers in the Red Sea this week, leading to rerouting of some Saudi shipments via a route that circles Africa. This followed the collapse of a short-lived truce between the United States and Iran which was agreed in mid-June.
Kazakhstan further reduced its oil production after suspected Ukrainian drone attacks forced its main export terminal for CPC Blend crude on the Black Sea to close. Production has halved, with sources reporting it is now around 406,000 barrels per day.
Spot premiums for Middle Eastern grades rebounded significantly. The premium for Abu Dhabi’s flagship Murban crude surged to $19.04, the highest since April 7, on tight supply for light-sour crude as ship attacks in the Black Sea compounded the supply problems in the Middle East.
The front-month Dubai contract itself touched $99.66 on Thursday, also a high since late May. Middle Eastern grades had traded at wide discounts earlier this month during the short-lived truce between the United States and Iran which was agreed in mid-June.
Adding to the Middle East disruption, Kazakhstan said it had reduced oil production after suspected Ukrainian drone attacks forced its main export terminal for CPC Blend crude on the Black Sea to close. Production has halved to around 406,000 barrels per day, one source said.
The rising security threat has already forced several oil tankers to change course in the Red Sea to head north towards the Suez Canal even as two Chinese supertankers exited on Thursday from Bab el-Mandeb into the Gulf of Aden. Saudi Aramco offered additional crude cargoes for loading from Egypt’s Mediterranean port of Sidi Kerir, according to five trading sources.
Several Asian refiners are looking for cargoes and vessels loading from the Egyptian port, two traders said, which would mean almost a one-month diversion around Africa compared to the usual route through Bab el-Mandeb. South Korea’s largest refiner SK Energy chartered a very large crude carrier (VLCC) to load 2 million barrels of crude from Sidi Kerir to Ulsan, South Korea, on August 18-20 at a lump-sum freight rate of $18.5 million.
