Oil Supply Risk Persists Amid Elevated Middle East Conflicts
Challenges faced in oil supply chain amid persistent problems in Middle East Sea routes
The ongoing conflicts occurring in the Middle East and the Red Sea routes are a major concern for every market sector. Producers and dealers are facing transportation issues due to extremely high freight charges along with an increase in the travel time. According to the International Energy Agency, the situation is more likely to persist in the upcoming months, impacting the overall oil supply across the globe.
Longer routes causing an increase in transportation costs
In its monthly report, IEA mentioned that the longer routes taken for the shipment are causing an increase in transportation and insurance costs. It has a significant impact on every market sector, including automotive, automobile, chemical, petrochemical as well as pharmaceutical industries. The estimations suggest a notable reduction in the demand curve during this period, impacting the overall price trend of base oil in the global market.
Reduction in the prices of base oil observed in the US market
The rate of base oil underwent many ups and downs, ending with a gradual dip during the final months of 2023. The prices remained around 1500 USD at the beginning of October 2023. However, the rate dropped to a value ranging between 1400-1500 USD by the end of December 2023. The reduction was prominent affecting the downstream industries in the USA.
According to Procurement Resource, the ongoing issues faced in the major sea routes covering the Middle East and the Red Sea area are very likely to persist, affecting the oil supply chain across various regions. The estimations suggest a reduction in the spot demand, causing a decline in the oil market in the forthcoming months.
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