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1 Feb, 2024 05:40

Red Sea crisis exposing EU energy weakness – FT  

Diesel prices have jumped amid fears of disruptions in supply to the bloc, according to the outlet
Red Sea crisis exposing EU energy weakness – FT  

The surge in global diesel prices to an almost three-month high amid shipping disruptions is threatening to test the resilience of EU economies, the Financial Times reported on Wednesday.   

The rising prices reflect concerns among traders that the turbulence in the Red Sea will lift fuel costs for consumers and disrupt vital supplies from Asia to the EU, one of the world’s largest importers of refined petroleum products.   

Gasoil futures, the global benchmark for diesel prices, have soared by 15% in just over a month to $845 per metric ton, the FT said, citing trading data.   

Since Western sanctions on Russian crude and refined products went into effect in 2022, the EU has relied heavily on imports from Asia and the US. However, with many tankers now avoiding the Red Sea route, shipping diesel to the EU from Asia has become more expensive, as freight and insurance rates have jumped and vessels are making longer trips around the Cape of Good Hope in Africa.    

Meanwhile, refinery maintenance in the US will further cut supplies across the Atlantic and drive futures and retail prices further up, experts warn.   

“This will leave Europe more reliant on east-of-Suez barrels, and that’s why the disruptions to shipping in the Red Sea will have a huge effect,” said Natalia Losada, an oil products analyst at Energy Aspects.

“We see tighter European diesel balances in the upcoming months…which will provide upside to time spreads and retail prices.”  

EU countries are largely powered by diesel, which is used in cargo transportation and aviation, and also for heating homes. A sharp rise in prices would add pressure to the bloc’s already struggling economies, which previously relied on Russian diesel imports until they were banned.  

“The prospect of more expensive diesel . . . exacerbates economic challenges, contributing to a burgeoning cost of living crisis,” said James Noel-Beswick, an analyst at Sparta Commodities.

Before the outbreak of the war in Gaza, the Middle East accounted for about 60% of the EU’s total diesel supplies, which have now slumped to about a third, the outlet said, citing data from S&P Global Commodity Insights.

The Red Sea crisis has coincided with a decline in diesel inventories in the Amsterdam-Rotterdam-Antwerp storage region (ARA), making Europe even more exposed to supply disruptions, the outlet said.

For more stories on economy & finance visit RT's business section

 

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