Energy traders, shippers grapple with Red Sea fallout as oil-freight costs swell

The Red Sea attacks are driving up costs and disrupting global oil trading, impacting shipping routes and increasing prices.

To avoid the Red Sea, the supertanker Grand Bonanza set out early in January on a roughly 40-day journey carrying 1.8 million barrels of Abu Dhabi crude for TotalEnergies from the United Arab Emirates all the way around Africa to France.

The trip will take at least two weeks longer than the normal route via the Suez Canal, and at about $5.7 million, will cost nearly 80% more, according to estimates by a shipping source and data from LSEG and Kpler.

The French oil giant’s booking of the Grand Bonanza illustrates how attacks by Yemen-based Houthi forces on Red Sea shipping, which had mostly affected container shipping, are now driving up costs and disrupting global oil trading.

A strike last Friday on a Trafigura-chartered fuel tanker underscored the risk. Energy producers and traders are weighing the higher prices of longer voyages around the Cape of Good Hope and using larger crude tankers to manage costs and risks, while buyers are demanding discounts to compensate for higher freight and war risk premiums.

Shippers are revising routes and refuelling points and accelerating cruising speeds, which burns more fuel and increases emissions.

“Unless the Red Sea disruption eases quickly, we should see some significant increase in the cost of delivered crude,” said Stefano Grasso, a portfolio manager at 8VantEdge in Singapore.

European refiners are hurt by the increased shipping times that are driving up costs for their crude, but their margins are supported by a drop in competing product imports from the West Asia and India, traders said.