Red Sea attacks spur global oil buyers to go local amid balance between security and profits

The global oil market is looking increasingly local as militant attacks in the Red Sea and surging freight rates make supplies from closer to home more attractive.

A slump in tanker traffic through the Suez Canal is spurring the beginnings of a split, with one trading region centred around the Atlantic Basin and including the North Sea and the Mediterranean, and another encompassing the Persian Gulf, the Indian Ocean and East Asia.

There’s still crude moving between these areas – via the longer and costlier journey around the southern tip of Africa – but recent buying patterns point to disconnection.

Across Europe, some refiners skipped purchases of Iraqi Basrah crude last month, according to traders, while buyers from the continent are snapping up cargoes from the North Sea and Guyana. In Asia, a jump in demand for Abu Dhabi’s Murban crude led to a spike in spot prices in mid-January, and flows from Kazakhstan to Asia are down sharply.

Crude loadings from the United States to Asia, meanwhile, plunged by more than a third last month from December, ship-tracking data from Kpler show.

The fragmentation will not be permanent, but for now it’s making it tougher for import-dependent nations like India and South Korea to diversify their sources of oil supply. For refiners, it limits their flexibility to respond to rapidly changing market dynamics and could eventually eat into margins.

“The pivot towards logistically easier cargoes makes commercial sense, and that will be the case for as long as the Red Sea disruptions keep freight rates elevated,” said Viktor Katona, lead crude analyst at data analytics firm Kpler. “It’s a tough balancing act, choosing between security of supply and maximising profits.”

Oil tanker transits through