Shell, Reliance seen diverting tankers from Red Sea as Houthi attacks continue

More companies have joined the ranks of oil producers avoiding the Red Sea, trade sources said, with Shell, ADNOC and Reliance Industries among those seen taking precautions amid escalating security risks.

S&P Global Commodities at Sea data showed that Indian refiner Reliance, a key diesel/gasoil supplier to Europe, had loaded no product for export to the continent in the first two weeks of January, while Abu Dhabi state-owned ADNOC voyages through the Red Sea have ground to a halt in recent days.

Denmark's Torm was also among the tanker operators seen rerouting vessels around the Cape of Good Hope at the southern tip of Africa, while Shell was said to have suspended all shipments through the Red Sea, according to a Wall Street Journal report Jan. 16.

None of the companies would comment, with ADNOC and Shell citing policy on operational matters, but sources familiar with the matter said the security situation was being closely monitored in the wake of attacks on a bulk carrier vessel, the latest victim of Yemeni Houthi maritime attacks on Jan. 16.

The Zografia, a Maltese-flagged bulk carrier, was struck by an anti-ship ballistic missile originating from Yemen at around 1345 pm local time, the US military said. No injuries were reported, and the vessel was still seaworthy and continuing its journey after the attack, the US Central Command said in a statement. It was the latest in nearly 30 maritime attacks attributed to Houthi militia since November, and came after the US and UK launched retaliatory strikes against Houthi positions.

While BP announced Dec. 18 that it had suspended tanker voyages through the region, rising tensions had otherwise left tanker transits relatively uninterrupted in late 2023.

As Houthi retaliation against US-led airstrikes has heightened security awareness in the region, however, major industry players have suspended voyages in growing numbers. While many oil majors and tanker owners are yet to take any formal stance on tanker routes, decisions often remain at the discretion of ships owners, according to trade sources.

With ships diversions around the South of Africa expected to add around two weeks to journey times, the slump in tanker transits have dashed hopes that the oil market might stave off bullish pressure from the Red Sea tensions and adds pressure to freight costs.

A total of 18 commercial ships were seen transiting the Bab al-Mandab Strait in the first nine hours of Jan. 16, according to CAS, up sharply from just seven in the same time period Jan. 15 but down from an average of 20 ships over the week to Jan. 12.

As of 16:30 GMT, some 260 commercial ships were transiting or underway in the Red Sea and Suez Canal waterways of which 114 were crude, products, chemicals, LNG and LPG tankers, according to CAS, slightly higher than levels seen Jan. 15.

More than 290 commercial ships, of which 176 were tankers, were seen transiting the morning after the first US-led strikes on Houthi targets in Yemen early Jan. 12.

Other oil majors have remained tight-lipped on intentions to rethink supply routes.

Mirroring the approach of other industry giants, Chevron said in a statement Jan. 16 that it will continue to "actively assess" safety of Red Sea routes to make decisions on its operations.

While weak demand and healthy product arrivals from the US into Europe have helped stave off significant price shocks, analysts have warned that low inventories and a heavy US refinery maintenance season could put pressure on supplies if flows from East of Suez decline.

According to data from S&P Global Jan.11, diesel and gasoil stocks sit at 1.963 million mt, 257,000 below the five-year average and 6% lower than 2023 levels.

"Now that planned maintenance and outages due to the cold over there are starting to kick in it’s looking like it’s [going to be] a tighter balance," said one distillates analyst. "It’s hard to be bearish right now."

M1 ICE LS Gasoil futures climbed 1.89% after news of rising diversions on the day to $794.75/b 16:30 GMT, according to S&P Global Commodity Insights data.