Red Sea Crisis Raises Shipping Costs, Crude Prices Rise

Red Sea shipping is facing a crisis. Many shipping giants have suspended Red Sea transportation or detoured transportation, which has led to an increase in oil prices and transportation costs, coupled with supply reductions. Investors are worried about the prospects of crude oil supply, and oil prices have closed higher. International crude oil closed on December 18: U.S. WTI crude oil 01 futures closed up $1.04, or 1.46%, at $72.47/barrel; Brent crude oil 02 futures closed up $1.40, or 1.83%, at $77.95/barrel. The main SC futures contract closed at 545.4 yuan/barrel.

Positive factors:

1. Attacks on cargo ships occur frequently in waters near the Red Sea. Many shipping giants such as Mediterranean Shipping Company, Maersk, CMA CGM and Hapag-Lloyd have announced that they will suspend navigation in the Red Sea or detour around the Cape of Good Hope at the southern tip of Africa. Investors are concerned about short-term crude oil supply, boosting oil prices as the detour and cost of transportation will further increase.

2. On December 18, Russia stated that it would further reduce oil exports in December, and the new production cuts may reach 50,000 barrels per day or more.

3. On December 18, Russian President Putin extended retaliatory measures against Western countries’ oil price caps imposed on him until the end of June 2024.

Negative factors：

1. On December 18, data released by the Joint Petroleum Data Initiative showed that Saudi Arabia’s crude oil exports in October hit the highest level in four months. Saudi Arabia's crude oil exports in October increased 9.6% from September to 6.3 million barrels per day.

2. The Indian government has significantly reduced the crude oil windfall profit tax.

3. Nigeria plans to comprehensively reform its security strategy to increase oil production. The Nigerian National Petroleum Corporation said the country plans to overhaul the safety architecture of the oil and gas industry to increase production next year, and Nigeria will increase crude oil production to 2 million barrels per day in 2024.