Energy Markets Can Survive This Qatari Blockade
The blockade against Qatar is undoubtedly causing difficulties for the citizens on the small Persian Gulf emirate. But its isolation is far from complete, and chinks in the wall are a clear indication that the connections that exist between Qatar and its uneasy neighbors cannot easily be broken. And, it looks like energy markets can survive the policy. Qatar’s rulers built the country’s independence on exports of hydrocarbons particularly natural gas and flows of these commodities have been put at risk by the restrictions imposed by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt.As I noted last week, the precise nature of these restrictions is far from clear. Some authorities in Saudi Arabia and the U.A.E. say any vessel travelling to or from Qatar cannot enter their ports.
More recently, the U.A.E.’s Federal Transport Authority limited the ban to those that are Qatari-owned or flagged, and to the loading or unloading of ships trading with Qatar.There is evidence that bans by Saudi, Emirati and Bahraini ports on ships which also call at Qatar are affecting the country’s oil and gas exports. The discounts I suggested that Qatar would need to offer to buyers of its oil to compensate for increased shipping costs are emerging. The country’s Al-Shaheen grade recently traded 70 to 90 cents per barrel below the regional Dubai benchmark, compared with an average discount of 25 cents last month. Traders expect the gap to widen further, due to continuing uncertainty over whether vessels loading Qatari crude will be able to call at other export terminals in the region, according to a Bloomberg survey. The situation has taken its toll. Observed shipments of crude and condensate from Qatar are down 20 percent in the first half of June, compared with the average for all of May, according to Bloomberg’s tanker tracking.
We can’t read too much into two week’s figures, because one shipment can have a big impact on daily average numbers, but the trend seems established.Still, it’s far from clear that the nation’s on a one-way path to stagnation. Vessels are still taking on cargo from Saudi Arabia and the U.A.E. after loading in Qatar, just as they were before the ban. Since June 5, when the restrictions were imposed, 13 tankers have loaded crude oil or condensate from the country. All but four of them also took on cargo in Saudi Arabia, the U.A.E., or both. The barrier imposed between the two countries and Qatar is porous, and may well remain so.
Co-loading Continues
Most tankers loading in Qatar are still taking on cargoes in Saudi Arabia and the U.A.E.
For Europe, the worry was that Egypt might deny passage through the Suez Canal for ships carrying Qatari liquefied natural gas. That’s still only a worry. Vessels laden with Qatari LNG are still using it, though fewer than before the crisis erupted. Two LNG carriers bound for the U.K. altered course to take the longer route around Africa rather than through the canal, but whether for commercial reasons or for fear of being turned away is unclear.
Egypt itself is still receiving Qatari LNG, but here again the pace seems to have slowed, with just one tanker discharging at the country’s Ain Sukhna terminal in the 10 days since June 5. This compares with an average of one every five days during May.The measures taken against shipping from Qatar are only slightly worse than an inconvenience. An escalation could increase the harm — and cause damage to customers who also have relationships with Saudi Arabia and the U.A.E.A total blockade risks raising the stakes. If it were to start preventing, for example, a big Japanese or Chinese refiner from acquiring the crudes they need, the ban would be seen as destabilizing the global oil flow rather than taking a stand against a recalcitrant neighbor. For these reasons, the current porous ban and uncertainty may suit the Saudis.
BACK WHERE WE BEGAN
What about the impact on oil prices? Last week the market sagged back below levels last seen in November, before OPEC agreed to the output cut that was meant to rebalance the market and lift them back towards $60 per barrel. If you were thinking that rising political tension in the Middle East and the threat of a blockade on some 500,000 barrels a day of supply onto the world market would send prices soaring, think again.
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