Oil supply concerns and prices over Red Sea disruptions

CGTN Europe

Oil and Gas Analyst at Wood & Company Jonathan Lamb spoke with CGTN Europe on the oil supply concerns over the Red Sea crisis.

Transcript

00:00 A fire has been put out on board a tanker in the Gulf of Aden after it was

00:05 hit by a missile fired by Yemen's Houthi rebels. The tanker flies under the flag

00:09 of the Marshall Islands and is operated on behalf of Trafigura, a multinational

00:14 commodities company. The US and UK have launched airstrikes on Houthi targets in

00:19 response to attacks in the Red Sea region. The ongoing crisis has led to

00:23 higher oil prices and supply chain concerns. Well to talk more about that

00:28 we're joined now by Jonathan Lamb, an oil and gas analyst at the investment bank

00:33 Wood & Company. Thank you very much Jonathan for being with us today.

00:36 What is your take on the impact of the Red Sea crisis and supply concerns on

00:41 the oil price? First of all I think on the actual oil price itself whenever

00:49 there is a crisis of this kind, oil prices tend to shoot up quickly and then

00:54 settle afterwards. I don't think that it will have a long-lasting significant

01:00 impact on the oil price. We have to remember that the one region of the

01:05 world that's really hit by this crisis in the in the Red Sea is Europe. So Asia

01:12 is going to be able to get its crude oil and its products and its natural gas as

01:17 usual. The US doesn't buy very much from the Middle East so it's really an impact

01:24 on Europeans and it means that their supply lines are now much much longer

01:30 than they were when the oil could just come up through the Suez Canal. And I

01:36 think this is going to create a lot of challenges in shipping. Some companies

01:41 are going to find that they have lower inventories than that they thought they

01:44 would and so it will have an impact on those refiners in the European area and

01:54 also on shipping costs because we need to ship all the way around Africa rather

01:58 than the much shorter route. Okay so it's really focused on Europe. Are there any

02:04 countries in particular that are most affected and you mentioned shipping

02:09 around Africa. Are there other solutions that countries are looking at to get

02:13 those ships or other forms of transport to get the oil that they need? Well there

02:20 are obviously other sources of crude available but but Europe now is not

02:26 buying any crude from Russia and Russia was a very big supplier of crude oil to

02:32 the European market. Now that crude actually has to go the other way and it

02:38 too can't go through the Suez. It's going to have to go through

02:41 Africa so that's one that's taken away from the table. Other crudes such as

02:47 Kazakh crude I guess are being used or North African are being used as much as

02:51 they can anyway because of the Russian situation. So I just think that they're

02:56 going to have to deal with bringing this crude from further away. The

03:02 Mediterranean region in particular I think will be more heavily hit because

03:06 the refineries in the Mediterranean rely more on Middle Eastern crude

03:10 than the ones up in the northwest of Europe. And you said that you don't see

03:16 a long-lasting impact on oil prices but what do you think is going to happen in

03:20 the short term? What's going to happen when the markets open tomorrow? The oil

03:26 price may go up a little bit more. I don't expect very much more. We are in a

03:32 market where oil prices have been declining. The market appears to be well

03:38 supplied in general so in that kind of market even these impacts don't really

03:43 push the price up that much. If we are in a much tighter market maybe that would

03:47 be different. I do think though that the price of diesel is going to go up a lot

03:52 in the European market. Europe used to get most of its imports of diesel from

03:57 Russia. It's currently getting a lot more diesel from east of Suez, from the

04:03 Middle East, from India, even from as far away as China. And so European diesel

04:09 supply chains are going to be very impacted and I think it has more impact

04:13 on diesel prices than it does on oil prices. Okay well we'll leave it there.

04:18 Great to get your thoughts on this today. Thank you so much Jonathan Lamb from

04:22 Wood and Company. Many thanks. It's a pleasure. Thank you.

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