Oil prices on Friday jumped above $80 a barrel for the first time in 2024 after the world’s largest tanker body warned members to avoid the waters off Yemen following US and UK air strikes on Houthi militants.
Brent crude rose 4 per cent to $80.50 a barrel while West Texas Intermediate, the equivalent US benchmark, gained a similar amount to $74.91 a barrel.
The International Association of Independent Tanker Owners (Intertanko), which represents almost 70 per cent of all internationally traded oil, gas and chemical tankers, said in an advisory to members on Friday to “stay well away” from the Bab al-Mandab strait, and for vessels travelling south via the Suez Canal to pause north of Yemen.
“The threat period for shipping is expected to last for several days,” Intertanko said.
While the majority of container ships have avoided the Red Sea area in recent weeks, the drop-off in oil tanker sailings has so far been less pronounced, with many still choosing to transit the route despite more than 25 attacks by Houthi militants on shipping since November.
US President Joe Biden confirmed overnight that he had ordered strikes, supported by the UK RAF, in response to “unprecedented” attacks by the Iran-backed militants on both merchant and military vessels.
Oil prices have been relatively calm since the start of the Israel-Hamas war in October, with only brief rises that have been faded by traders betting that a serious supply disruption is unlikely if the conflict can be contained.
The market is also viewed as relatively well supplied, with output rising from producers outside the Opec+ cartel and demand growth weighed down by a tepid global economy.
But the risk of an expanded conflict that affects oil supplies has grown, with Iran seizing an oil tanker near the Strait of Hormuz — the world’s most important oil route — on the other side of the Arabian peninsula on Thursday.
Traders said the growing risks meant those who had been betting against the price would be cautious ahead of the weekend, and may buy back positions.
“The oil market has largely shrugged off risk that the Israel-Hamas war would disrupt oil supplies,” said Bob McNally, founder of Rapidan Energy and a former adviser to the George W Bush White House. “But as Iran and its proxies continue to escalate attacks on commercial shipping and US and allied military bases in the region, that premium is likely to return.”
Denmark-based Torm, which operates a fleet of 80 tankers for oil products, said after the Intertanko warning that it would stop sending vessels into the southern Red Sea.
“Torm has decided to pause all transits through the southern part of the Red Sea for now,” the company told the Financial Times, and was expected to instruct some vessels to pause and send others via the longer route round the Cape of Good Hope.
While oil supply chains are more robust than many manufactured products, with huge volumes of crude and fuel held in storage by refiners, shippers are likely to face higher freight and insurance costs.
Goldman Sachs said this week that implied oil shipments through the Bab al-Mandab strait had declined by only about 15 per cent or less than 1mn barrels a day. Clarksons, a shipping brokerage, put the decline in tanker transit at about 25 per cent this week compared with the same period last year.
Total crude and refined product oil flows through the strait were as high as 8.8mn b/d in the first half of 2023, according to the US Energy Information Administration.
Western governments have been debating how to respond since Houthi rebels started attacks late last year in an area through which nearly 15 per cent of global sea trade passes.
A US-led military coalition and shipowners had tried to strengthen security in the Red Sea last month but it has done little to deter attacks, increasing pressure on the governments to strike the rebels in Yemen.
Bjarne Schieldrop, a commodities analyst at SEB, warned that the air strikes may prompt retaliation by Iran and its allies. “The fear in the oil market is that the region is on an unpredictable escalating path where at some point down the road supply of oil will indeed in the end be lost,” he said.
Additional reporting by Stephanie Stacey in London
