By: Suhaib Shams
Goldman Sachs announced that global crude oil transport costs have witnessed a sharp surge, reaching about sevenfold over the past year, affected by military escalation and ongoing geopolitical tensions in the Middle East, which places additional pressure on global energy markets.
Inflation of Transport and Logistics Costs
The average cost of transporting a barrel of crude oil rose from just three dollars to over twenty dollars per barrel. The bank's analyses indicated that this unprecedented massive rise is due to escalating security risks, higher operational fuel expenses, and the increasing resort to complex ship-to-ship oil transfer operations at sea to avoid risks, as about seven dollars are added to the cost of a single barrel due to war risks in the Strait of Hormuz, four dollars for fuel costs, and another four dollars for ship-to-ship transfer operations.
Changes in Maritime Shipping Routes in the Gulf
Frequent attacks around the Arabian Gulf and the Strait of Hormuz have caused fundamental changes in international oil shipping traffic. Despite the gradual recovery of shipping volumes through the Strait of Hormuz after their sharp decline in the early stages of tensions, transport mechanisms have shifted towards unloading ship cargoes into larger tankers for safe delivery to refineries. Market estimates indicate that about one-sixth of tankers located in the Arabian Gulf and the Gulf of Oman perform daily ship-to-ship oil transfer operations.
Implications for Oil Refineries and Price Outlook
These additional logistical burdens contribute to raising the final cost of delivering crude to refineries, which may negatively reflect on the overall demand for crude oil and force refineries to rethink their options and shift towards suppliers in geographically closer regions to avoid high costs. Regarding future price expectations, the bank maintains its baseline estimate that Brent crude prices will decline to around ninety dollars a barrel by the end of the year, while maintaining clear warnings that the continued rise in shipping costs and attacks on energy infrastructure pose potential upside risks to prices.
