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Strait of Hormuz Shipping Traffic Plummets 19% in a Week, Jefferies Reports
Summary
Commercial vessel traffic through the critical Strait of Hormuz has fallen sharply, now standing at just 25 ships daily compared to 120 before the conflict, according to a Jefferies report. The disruption is tightening global energy markets and sending refining margins soaring.
Daily commercial shipping traffic through the Strait of Hormuz, a critical global energy chokepoint, plunged 19% over the past week, according to a new report from Jefferies. The decline underscores the escalating impact of regional conflict on global supply chains and energy markets.
Vessel Traffic and Freight Costs
The investment bank's analysis shows that current traffic has dwindled to just 25 vessels per day. This represents a stark reduction from the pre-conflict average of 120 vessels daily, highlighting the severity of the logistical disruption for global trade.
While freight rates for the route dropped 30% during the week, they remain approximately double the levels seen before the conflict began, according to Jefferies. This indicates persistently high shipping costs and risk premiums for charterers navigating the region.
Pressure Mounts on Refining and Inventories
The turmoil has had a significant knock-on effect on the global oil market. The report notes that approximately 800 million barrels of crude inventories have been drawn down since the conflict started, tightening physical supply.
This tightness is reflected in soaring profitability for refiners. Key indicators from the report include:
Ad- Singapore gross refining margins reached $21 per barrel, a substantial increase from $5 per barrel at the end of February.
- Gasoline, diesel, and aviation fuel crack spreads now stand at $29, $49, and $44 per barrel, respectively.
- Petrochemical margins have surged 101% compared to February levels.
Jefferies attributes this to damage to approximately 3.4 million barrels per day of refining capacity, which represents 3.5% of the global total.
Shifts in Global Crude Flows
The disruption is also reshaping global crude oil flows as importers adapt to the new market dynamics. India’s use of Russian crude increased to 38% of its imports in May from 34% in April, as buyers sought discounted barrels.
This trend coincides with the expiration of a U.S. sanction waiver on Russian crude on June 17. The discount for Russia's Urals grade crude relative to Brent widened to $19 per barrel from $14 the previous week, further incentivizing purchases by price-sensitive importers. Meanwhile, spot LNG prices have also risen, standing at $16 per million British thermal units (mmBtu), up 3% week-over-week.