Key facts
- Houthi threats in the Red Sea have caused oil prices to reach a five-week high.
- Two tankers carrying Saudi crude bound for Asia rerouted due to the threats.
- European naphtha market participants are pricing in the risk of disruptions in the Bab el-Mandeb strait.
- The east-west naphtha swap spread widened significantly on supply concerns.
- Rerouting tankers around the Cape of Good Hope would add significant time and cost to voyages.
Oil prices have climbed to a five-week high amid escalating Houthi threats in the Red Sea and Bab el-Mandeb Strait, impacting energy supply chains. Asian refiners are considering rerouting Saudi crude, a move that could add weeks and significant costs to voyages.
The Houthi militant group's actions have put Saudi Arabia's increased Red Sea oil shipments under threat. This situation is compounded by the broader U.S.-Iran conflict and declining Russian naphtha exports.
European naphtha market participants are increasingly factoring in the risk of disruptions, with the east-west naphtha swap spread widening considerably. While physical cargo flows have not yet seen meaningful changes, some shipowners have suspended Red Sea transits, awaiting clarity on potential restrictions.
If the situation worsens, cargoes could be rerouted around the Cape of Good Hope. However, this would substantially increase freight costs and voyage times, raising the expense for Asia-Pacific buyers. Market participants suggest the naphtha east-west spread may need to widen further for such long-haul routes to become routinely economic.