Saudi Aramco’s CEO, Amin Nasser, has stated that while global oil markets will adapt to short-term disruptions in the Red Sea, the continued Houthi attacks on vessels over a longer period will lead to a tanker shortage due to longer voyages and supply delays.
Speaking to Reuters, Nasser expressed expectations of a tighter oil supply following consumers depleting reserves by 400 million barrels over the past two years. This drawdown has left OPEC’s spare production capacity as the primary source for additional supplies to meet increasing demand.
Houthi attacks on ships in the Red Sea have forced many companies to reroute their shipments around Africa.
The Houthis claim that their operations are in solidarity with the Palestinians during Israel’s ongoing campaign in Gaza.
As oil tankers navigate alternative routes away from this strategic maritime passageway, markets continue to monitor the situation in the Red Sea alongside investors’ concerns about supply disruptions.
Yesterday, the United States launched new strikes on the Houthi group after a Greek vessel was targeted by a Houthi rocket in the Red Sea.
Some container ships have temporarily halted their journeys or altered their courses away from the Red Sea, which leads to the Suez Canal, the quickest maritime route from Asia to Europe, accounting for around 12% of global shipping traffic.
Following the start of US and British strikes, the major British oil firm Shell suspended shipments through the Red Sea, whereas American oil producer Chevron maintained its routes in the area.
The alternative route around Africa via Cape of Good Hope adds an additional 10 to 14 days to the journey.
Shell suspended Red Sea shipments after the beginning of the American strikes (Reuters)
Surplus Energy Capacity
Aramco’s CEO mentioned that the company could circumvent the Bab el-Mandeb Strait near Yemen by utilizing a pipeline that connects its eastern oil facilities to the western coast, enabling faster access to the Suez Canal.
Nasser noted that some oil products might need to sail around Africa, and he expects that the Houthis will not attack Aramco’s facilities again due to ongoing peace talks between Saudi Arabia and Yemen.
Nasser forecasts that oil demand will reach 104 million barrels per day by 2024, indicating a growth of approximately 1.5 million barrels per day after an increase to 2.6 million barrels per day in 2023.
He added that the combination of demand growth and reduced inventory levels would help tighten the market supply.
Oil Prices Decline
Meanwhile, oil markets fell on Wednesday after China’s economic growth data, the world’s second-largest crude oil consumer, came in slightly below expectations, stirring concerns about future demand increases. The strong dollar also impacted investors’ appetite for risk.
Brent crude futures dropped 2% to $76.72 a barrel at 10:20 GMT.
West Texas Intermediate (WTI) crude futures fell 2.4% to $70.95 a barrel.
Brent crude rose slightly the day prior while WTI declined amid weak fundamental factors in the United States. However, the ongoing conflict in the Red Sea heightened fears that tankers might have to change course to avoid the region, leading to increased costs and extended delivery times.
China’s economy grew by 5.2% year-on-year in the last quarter of the previous year, which came in below analysts’ expectations and raised questions about the outlook for China’s demand to boost global oil prices this year.
