Crude and gas pop on Red Sea disruption risk

Crude oil and European gas prices received a boost on Monday after several companies, including BP and Equinor, joined a growing list of shippers who have paused Red Sea shipping amid almost daily attacks from Iran-backed Houthi rebels. Developments that led London’s marine insurance market to widen the area in the Red Sea it considers high risk, further reducing the passage of ships on the shortest route to Europe from the Middle East and Asia via the Suez Canal. 

This being the latest disruption related to the Israel-Hamas war with the Houthi attacks being carried out in support of Hamas, and while it may raise short-term supply risks as ships have to sail around Africa, which will add thousands of miles to their voyages, thereby delaying cargo deliveries, the risk of a lasting impact seems limited at this stage. Also considering the US defence Secretary Austin has announced plans to setup a new maritime task force intended to protect commercial vessels from attacks. An announcement that helped arrest Monday’s rally with some weakness seen today, especially in gas.

The longer journeys will require a bigger number of ships and with freight rates potentially rising as a result, shipowners stand to gain the most from this disruption. Since the news broke on Friday, a global shipping index which tracks the performance of stocks from companies engaged in the water transportation business has jumped 10%. An example being Denmark’s Maersk, one of the world’s biggest owners of container vessels jumped 18%, having been under pressure recently from a global economic slowdown and rising capacity. As of yesterday, some 46 container ships have diverted around the Cape of Good Hope rather than transiting the Red Sea, while another 78 container ships are delayed and waiting further orders before transiting (Source: @typesfast on X). 

EU gas remains rangebound with weather the biggest risk

Back to the energy sector which saw the European TTF benchmark gas contract surge by as much as 13% on Monday before reversing lower today. The Suez Canal has emerged as the main route for global LNG trade over the past two years as Europe seeks replacements in the Middle East for pipelined gas from Russia. However, while the closure highlights Europe’s increased reliance on super-chilled gas the outlook for demand this winter stays manageable amid elevated levels of gas in storage, a mild start to the winter and weak industrial demand all weighing on prices. With that in mind spot prices are likely to remain stuck above €30 per MWh with focus on weather developments the main catalyst for a break in either direction.