|

Oil: Red Sea route risks and price outlook – MUFG

MUFG’s Michael Wan notes that disruptions in the Strait of Hormuz have shifted more Middle East Oil flows toward the Red Sea and Bab el-Mandeb, increasing vulnerability to regional conflict. While Houthi threats and potential rerouting via Suez and Cape of Good Hope could lift transport costs, MUFG still expects Oil prices to stay below earlier conflict highs if a resolution eventually emerges.

Red Sea vulnerabilities and price risks

"In particular, the Houthis said they will impose a maritime blockade on Saudi Arabia in response to what they say is Saudi Arabia’s siege of the Yemeni capital. This led to the Saudi Arabia led military coalition in Yemen to begin implementing operational measures to protect ships in the Bab el-Mandeb Strait at the southern end of the Red Sea."

"A wholesale disruption of the Strait may also be an alternative option, and this may lead some tanker and cargo traffic to take a longer route through the Suez Canal and the Cape of Good Hope which could ultimately lead to higher container freight rates and transport costs."

"For context, with the ongoing disruptions in the Strait of Hormuz, oil flows have been increasingly reliant on the Red Sea and the Bab el-Mandeb Strait. In particular through the East-West pipeline roughly 4mn barrels per day of oil from Saudi Arabia is now shipped through the Red Sea and as such any effective disruption to oil flows there could be quite impactful for Asian countries dependent on Middle East oil for supplies."

"In practice, we think even if there were disruptions it is unlikely to be sustained given the lack of capability right now by the Houthis to do so and also differentiate which are Saudi linked ships or not."

"Latest indications are that there continues to be talks and discussions happening in the background including through mediators and with the US mid-terms coming up coupled with lack of munitions by the US military oil prices may not revisit the earlier highs that we saw earlier during the conflict."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

USD/JPY eyes August swing low, near 155.20 ahead of US NFP

USD/JPY retests the August monthly swing low during the Asian session on Friday as a more hawkish repricing of BoJ rate-hike bets and a suspected intervention continue to underpin the Japanese Yen. Meanwhile, the US Dollar is seen consolidating the previous day's heavy losses amid soft US bond yields, further weighing on the currency pair as traders keenly await the US NFP report.

AUD/USD consolidates above 0.7200; US NFP awaited

AUD/USD holds steady above 0.7200, near its highest level since mid-May, as bulls await the US NFP report for more cues on the Fed's policy path before placing fresh bets. Meanwhile, the recent decline in US bond yields keeps the US Dollar depressed near its lowest level in over a week and acts as a tailwind for the Aussie amid the RBA's hawkish tilt.

Gold tumbles as blockbuster US NFP lift US Dollar, Treasury yields

Gold (XAU/USD) falls sharply on Friday, snapping a two-day recovery after the US Nonfarm Payrolls (NFP) report surprised strongly to the upside. The metal briefly climbed above $4,500 on Thursday, gaining nearly 2%, but has since erased a large part of that advance.

Crypto’s $638 million buyback boom may not be as bullish as it looks
Decentralized Finance (DeFi) protocols reportedly spent $638 million to buy back their native tokens in August, up 17% from a year earlier. On the surface, the buyback trend suggests the cryptocurrency industry is maturing fast, adopting one of Wall Street’s oldest tools to bolster valuations and distribute revenue. The headline becomes less impressive once the number is opened up.
Why hawkish Bank of Japan expectations aren't enough to sustain the Japanese Yen rally

The Japanese Yen (JPY) experienced a sudden burst higher after falling back below the 160.00 psychological mark against the US Dollar (USD) earlier this week amid a more hawkish repricing of Bank of Japan (BoJ) rate hike expectations.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.