China reportedly suspends oil-product exports beyond Hong Kong and Macau
Projectiles hit three Liberian-flagged tankers in the Strait of Hormuz on Tuesday, the same week the average UK diesel price hit an all-time high of 199.18p a litre and China’s reported suspension of oil-product exports beyond Hong Kong and Macau helped push Brent crude back above $100 a barrel on Thursday. The developments come even as crude volumes through the strait have largely recovered to pre-war levels — an uneven adjustment that has left refined products such as diesel sharply constrained and that shipping analysts say has not eliminated the danger to vessels.
The danger to ships and crews was underscored on Tuesday, when three Liberian-flagged tankers were hit by projectiles while transiting the strait. The same week, the average diesel price in the UK hit an all-time high of 199.18p a litre on Monday, with many motorists already reporting prices above £2 on some forecourts.
“Diesel carries the sharpest risk,” Kpler analysts said, finding that less than 20% of pre-war levels of refined products shipped through Hormuz were being transported. The trade intelligence firm recorded a seven-day average of 677,000 barrels per day of refined products as of Monday, compared with 3.6 million before the conflict. The recovery in crude flows has been driven in part by a shuttle fleet mostly comprising very large crude carriers sailing with their satellite transponders turned off, with cargo moved on to different tankers in open water, usually off the coast of Oman or Fujairah in the United Arab Emirates. More than 70% of the crude that passed through the strait in August changed tankers, whereas before the war almost no Gulf crude changed ships in the Gulf of Oman.
Richard Meade, the editor in chief of Lloyd’s List, warned that the apparent normalization carried its own risks. “New routes emerge, cargos are rerouted, risk is priced in and absorbed,” Meade said. “The danger is assuming that resilience equals security. It doesn’t. Oil flows have recovered because the market participants have accepted greater operational complexity and higher costs. The underlying threat remains.”
Brent crude moved higher again on Thursday, briefly trading back above $100 a barrel, up 3% to $101, as traders balanced the recovery in Middle East crude exports with uncertainty over a long-term resolution to the conflict. The rise followed reports that China had suspended exports of oil products to regions beyond Hong Kong and Macau — a move oil analysts said could suggest concern about the availability of domestic products.
The market adaptations that have restored crude volumes since the war began on 28 February with US and Israeli strikes on Iran are extensive. At least 16.5 million barrels per day left the region in September, matching the pre-war average excluding Iran, according to figures from the global trade intelligence firm Kpler. That total runs 10.5 million barrels per day higher than the monthly average for March, during the first weeks of the conflict. About 40% of the region’s crude is now transported without transiting the strait, compared with 17% before the war, through Saudi and Emirati pipelines, Kpler analysis found. Saudi Arabia restarted operations on its east-west pipeline in late September after it was damaged during drone attacks, allowing exports to resume from the Red Sea port of Yanbu. The US military continues to escort some vessels through the waterway.
Iran’s control of the strait appears to have declined in recent weeks, according to analysts, as oil exporters found workarounds to address the disruption. Tehran has sought to exert its authority on the strait since the war began and has at times declared the strategic waterway closed.