Shipping Australia understands from a variety of sources that fuel continues to arrive in Australia in frequencies that are needed and expected despite the ongoing conflict in the Middle East and that sufficient fuel is expected to arriving in due course.
There are several main reasons for this. Prior to the outbreak of conflict, there were fuel-stocks in-country, the refineries in South Asia and Southeast Asia also would have had inventory of crude too. Additionally, there is the stock-on-the water concept – refined oil products for Australia was already in ships en-route from South Asia and South East Asia, and crude oil from all over the world was en-route to refineries from where Australia gets its refined fuels.
Following the outbreak of conflict and the slump in traffic through Hormuz, there would have been a wide variety of ships on the water containing fuel in its various states. Some of the Middle East origin crude destined for refineries in East Asia will have either just arrived or will be arriving about now.
Meanwhile, we understand that Australia continues to have the necessary stocks of fuel of various types. The localised shortages that we have been hearing about in the media have been caused by local people buying excessively large volumes. Fuel suppliers, however, have been limiting sales to contracted volumes which means that spot buyers may well be getting turned away, which is probably adding to the (incorrect) fuel-shortage narrative.
Shipping Australia CEO, Capt Melwyn Noronha, commented: “In moments of crisis, clarity and integrity matter most; the political fog of urgency must never be used to slip in old agendas or reframe events to suit pre‑existing goals.”
Obviously, if the situation continues without change then eventually a shortage would eventuate as about 20 million barrels per day of oil formerly flowed through the Strait of Hormuz, which has seen a fall of about 95% of ship traffic. Additionally, owing to the conflict, we understand that about 6 million barrels per day of production in the Middle East is offline for a variety of reasons including precautionary measures, damage from drone attacks and the like. Additionally, some facilities producing derivative products of oil have reduced production owing to feedstock supply issues.
However, the situation is not without change – it is constantly changing. The 32 member countries of the International Energy Agency recently unanimously agreed to make 400 million barrels of oil from their emergency reserves available to the market to address disruptions in oil markets stemming from the war in the Middle East. Meanwhile, the Federal Australian Government has today announced that 20 per cent of the baseline Minimum Stockholding Obligation for petrol and diesel from Australia’s domestic reserves will be released, which amounts to about 762 million litres of petrol and diesel.
“These can be targeted towards localised market disruption. This will take time to move through Australia’s long and complex supply chain from where fuel is held to the regional areas where it’s needed,” said the Hon Chris Bowen MP, Minister for Climate Change and Energy, who also emphasised that it is unnecessary to stockpile fuel.
Additionally, international brokers report that the Kingdom of Saudi Arabia appears to be taking steps to increase exports of oil from the Red Sea – bypassing Hormuz altogether – through the East-West Pipeline to Yanbu. Current volumes at Yanbu are about 4 million barrels per day and it can reach up to 7 million barrels per day. There are about 25 very large crude carriers (the largest type of crude oil tanker) that are en-route to Yanbu which brokers say is up to five times the normal volumes.
Resumption of traffic through Hormuz will likely occur if either hostilities cease or, alternatively, the Iranian capability to launch attacks is sufficiently degraded so naval convoys can begin. French President Emmanuel Macron has declared that France and its allies are preparing for such a situation. International shipping trade publication Lloyd’s List has cautioned however that if naval convoys begin, then tanker transits will be limited to about 10% of normal traffic.
The current situation, according to international maritime brokerage, Clarksons Research, is that 19 vessel incidents have been recorded since the conflict began, vessel transits through the Strait remain at “very low levels, and attacks on maritime infrastructure is continuing. Bunker prices (i.e. ship fuel prices) have surged with prices for a tonne of very low sulphur fuel oil (the most commonly-used type of heavy fuel oil) rising to USD$1,255 per tonne, a price described as a “record” by Clarksons. The implication of a rising cost of bunkers is that all shipping costs everywhere will be subjected to upwards pressure.
Freight rates for very large crude carriers, and LNG carriers are elevated, bulker markets are reported to be “broadly steady” according to Clarksons, which is also reporting that the containership sector is showing disruption leading to an “uptick” in freight rates. However, Clarksons adds that “indicators of containership port congestion are yet to show major impacts”.
The current outlook remains uncertain.
