Experts believe the fragmentation in the oil market will not last long, but it is making it more difficult for oil-importing countries like India and South Korea to diversify their supply sources.

The global oil market is becoming increasingly fragmented.

As Houthi attacks cause a crisis in the Red Sea, driving up shipping and insurance costs, oil buyers are forming a trend of seeking geographically closer sources to ensure commodity stability.

According to Bloomberg, on February 4, some oil tankers were still passing through the Red Sea route, but detours around the Cape of Good Hope, South Africa, made oil transport journeys longer and more expensive.

This has led to a rapid decline in the number of oil tankers passing through the Suez Canal. Instead, oil tankers are concentrating on two main directions.

The first direction is around the Atlantic Basin, including the North Sea and the Mediterranean. The second includes the Persian Gulf, the Indian Ocean, and East Asia.

This situation clearly demonstrates a shift in the oil trade activity model.

According to traders, since last month, some European refineries have stopped buying Basrah crude oil from Iraq and switched to buying oil from suppliers in the North Sea and Guyana.

In Asia, demand for Murban oil from the United Arab Emirates has surged, leading to a mid-January spike in spot oil prices from the region, compensating for a significant drop in Kazakh oil flows to Asia.

Experts believe the fragmentation in the oil market is not expected to last long, but for now, it is making it more difficult for oil-importing countries like India and South Korea to diversify their oil supply sources.

For oil refiners, fragmentation limits their flexibility in responding to rapidly changing market dynamics and could ultimately reduce profits.

Viktor Katona, a leading crude oil analyst at Kpler, stated: "The shift towards closer oil sources has significant commercial implications.

It ensures a stable supply for buyers, and this will continue as long as disruptions in the Red Sea keep shipping costs high.

The market's response is a delicate balancing act, choosing between supply security and maximizing profits.”

According to data released by Kpler on January 30, the number of oil tankers passing through the Suez Canal in January decreased by 23% compared to November 2023.

The decline is even more pronounced for liquefied petroleum gas and liquefied natural gas carriers, with decreases of 65% and 73%, respectively.

In product markets, the flow of diesel and jet fuel from India and the Middle East to Europe, as well as Europe's exports of fuel oil and naphtha to Asia, have been most affected.

Last week, Asian naphtha prices, a petrochemical feedstock, reached their highest level in nearly two years due to concerns that European supplies would become more challenging.

Source: Vietstock