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Escalating tensions in the Middle East, particularly threats to ships in the Red Sea, have caused a surge in refined fuel prices. The recent missile attack on the Marlin Luanda tanker, carrying Russian naphtha and chartered by Trafigura, has raised concerns about the security of Red Sea voyages.
While crude oil prices remain relatively stable, the impact on refined fuels is significant. Asia and Europe have witnessed a sharp increase in diesel and gasoline production profit margins. The crack on gasoil production in a typical Singapore refinery jumped 18% on Monday, reaching $25.58 per barrel.
In Europe, the refining margin of diesel barges reached a two-month high of $32.84 per barrel on Monday. Similarly, the profit margin for producing a barrel of 92-octane gasoline from Brent crude in Singapore rose by 7.4% to $16.45, marking a five-month high.
Analysts predict a market adjustment akin to the aftermath of Russia's invasion of Ukraine in February 2022. Despite initial price surges, the market eventually adapted to new trade flows, and prices retreated to below pre-invasion levels within months.
The threat to shipping in the Red Sea may lead to higher costs as tankers reroute around the Cape of Good Hope in South Africa, a longer voyage compared to using the Red Sea and the Suez Canal. However, supply from the Middle East remains unaffected, and trade flows are expected to adjust.
Trade patterns are already shifting in January, with increased US diesel exports to Europe and a decline in Asia's diesel exports to Europe. If tankers continue to avoid the Red Sea, refined fuel prices in Asia and Europe may rise, reflecting increased shipping costs. However, analysts anticipate this risk premium easing as the market adapts.
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