Suez blockage impact on Mideast Gulf light ends limited

The impact of the ongoing Suez Canal blockage on the Mideast Gulf light distillate market has so far been very limited. But the situation may change if the congestion persists.

The 400m-long Ever Given continues to block the canal after running aground on a northbound passage early on 23 March. Efforts have been ongoing since to re-float the vessel.

The Mideast Gulf is a major supplier of naphtha to the net short Asian market, which also relies on arbitrage cargoes arriving from European destinations. Arbitrage arrivals to Asia are expected to be around 2.5mn t for March and 1.7mn t for April. Delayed European cargoes that are en route to Asia may result in increased demand for Mideast Gulf naphtha, if the blockage persists or cargoes are re-routed around the Cape of Good Hope in South Africa.

But so far only two naphtha cargoes look likely to be affected by the delays in the Suez passage. State-owned Saudi Aramco chartered the Bowfin to carry 60,000t of naphtha to South Korea, and Trafigura booked the Spetses Lady to deliver 85,000t of naphtha to Japan, according to shipping fixtures. The two vessels are now waiting at the northern entrance to the canal, both carrying Black Sea cargoes as part of term contracts.

In the Mideast Gulf, fifteen vessels were chartered in the week of 22-26 March to load around 990,000t (8.811mn bl) of naphtha on the route to Asia, according to shipping fixtures. The bookings are slightly up from 775,000t in the week before, but similar to the 987,000t booked in the week to 8-12 March. This signals that Asian buyers are not yet concerned about lower incoming naphtha supplies.

The Mideast Gulf naphtha premium increased to $22.50/t on 26 March, from $22.00/t on 23 Mach — the day the Ever Given ran aground in the canal.

Meanwhile, no gasoline cargoes have departed Europe towards the Mideast Gulf so far in March, according to Vortexa, because of an unfavorable east-west spread. Mideast Gulf gasoline also typically flows to East and South Africa, but neither of these routes are affected by the Suez passage being blocked.

What is more, the Suez blockage is causing upward pressure on freight costs. This has added to a recent uptick in freight rates on the Mideast Gulf-Japan route following a pickup in naphtha bookings over the past month because of a spate of unplanned refinery shutdowns following an earthquake in Japan last month.

By Ieva Paldaviciute