Pirate attacks are starting to distort world fuel trade, threatening supplies of jet fuel and diesel to Europe from Asia, because higher premiums for shipping make trade uneconomic.
While the two latest ships seized in the Indian Ocean this month were carrying crude oil not refined fuels, the bulk of smaller oil product tankers pass through pirate-infested waters on their way to the Suez Canal.
Europe-bound oil tankers from the Middle East now have no option for crossing pirate-free waters. Ship industry associations have warned that more than 40 percent of the world’s seaborne oil supply passes through the Gulf of Aden and the Arabian Sea.
Traders said term contract obligations for fuel deliveries would still be met, but some would be deterred from making discretionary spot trades because of the higher costs.
“People won’t move ships unless the economics work and it’s getting more and more expensive,” said an oil products trader at a Wall Street bank.
Trade sources said more frequent attacks drove up insurance costs by between $2 (R14.30) and $3 a ton for a mid-range products tanker.
“It’s clearly having an impact on shipments. It’s costing an arm,” said another oil products trader.
Europe is a net importer of oil products such as diesel and jet fuel and an exporter of products such as the feedstock naphtha, petrol and fuel oil used to power ships.
Oil product flows have been affected more than crude even though this month’s targets carried the latter.
“Products are more sensitive as you can get them from a few different regions. You don’t have to get them from the Middle East,” said a crude oil trader. “Crude is more expensive but it’s nearly impossible to affect crude flows, which works in the pirates’ favour.”
A diesel broker said the arbitrage from the Middle East to Europe was now shut and insurance costs were likely to prevent future spot bookings.
“Supplies will be tighter in Europe,” he said.
Europe typically imports between 800 000 and 1 million tons of jet fuel monthly through the Suez Canal.
Naphtha flows from Europe to Asia might also be curtailed and the arbitrage to Asia was currently unworkable, trade sources said.
Fuel oil shipments to Asia were continuing, traders said. – Reuters