Red Sea tensions drive down WAF Suezmax rates, disrupt Persian Gulf trade flows

Disruption in the Red Sea has led to an influx of westward ballasters into the Atlantic region from the Persian Gulf, which has in turn played a major part in driving down freight rates for Suezmax voyages loading in West Africa, according to sources.

Platts, part of S&P Global Commodity Insights, assessed the freight rate for the key 130,000 mt WAF-UK/Continent route at $16.98/mt on Feb. 6, down from a two-month high of $23.61/mt, where rates had stood for most of the first half of January.

The freight cost for the Persian Gulf-Mediterranean 140,000 mt route was assessed on $22.93/mt on Feb. 6, a near four-year high.

Sources said vessels ballasting away from the Persian Gulf had caused a build-up of tonnage in the WAF loading zone.

Combined with lower cargo inquiry levels and a weakening US Gulf market, this has enabled charterers to fix voyages at lower rates.

"The market's taken an absolute battering," a London-based Suezmax broker said.

A Suezmax owner said: "As quite a few owners will now not transit the Red Sea and there are not enough cargoes in the Persian Gulf [for Westbound], they will now look towards West Africa."

Vessels diverting to Cape of Good Hope

The ongoing instability in the Red Sea has also led to more vessels shipping oil from the Persian Gulf to Europe opting for the longer route around the Cape of Good Hope in recent weeks, which can add as much as a month in travel time compared with traditional voyages through the Suez Canal.

"I think there's less demand from Europe," one trader said. "In addition to the Red Sea, many ships also find it hard to traverse to Europe as many Mediterranean refiners can't berth VLCCs."

High offers for the Suez Canal option from owners discouraged charterers considering transiting via the Suez Canal, according to market sources.

Discussions in the market focused on the economics of transiting through the Suez Canal versus taking the Cape of Good Hope route, which facilitated trading.

The difference between the Cape of Good Hope route and the Suez Canal route is w40-50 points, according to market sources.

Tensions in the Red Sea have altered trade flows, resulting in increased freight costs that are hurting trading economics.

Shipments of Iraq's Basrah crude to Europe have declined in recent months, with Asian crude traders attributing the fall to the ongoing tensions in the Red Sea that likely prompted some European end-buyers to reduce their spot purchases of the grade.

There was an average of 25 monthly Suezmax shipments from the Persian Gulf to Northwest Europe and the Mediterranean in 2023, according to S&P Global Commodities at Sea data. It showed a trend of increasing shipments from January to August last year, with a peak of 33 shipments registered. However, there was a notable decline in shipment numbers towards the year-end, a trend that persisted into January. The number of shipments fell to 12 in January, halving the average monthly figure seen in 2023.

Reduced exports and rerouted vessels to Europe have also contributed to the diminished daily vessel count in the Bab al-Mandab Strait. S&P Global's MINT tanker tracking platform's count of live, daily vessel movements through the Strait totals 239 ballasted and laden oil tanker vessels in the year to Jan. 23 compared with 323 at the same point in December, S&P Global Commodity Insights analysts said.