Vitol CEO Warns of Potential $200 Oil Amidst Middle East Shipping Risks

Russell Hardy, chief executive officer at Vitol Group, the world’s largest independent oil trader, has highlighted the critical role of ship-to-ship (STS) transfers in the Gulf of Oman in maintaining oil flow from the Middle East. Hardy warned that a disruption to these operations could lead to a scenario where oil prices reach $200 per barrel.

Speaking at the Energy Intelligence Forum in London, Hardy stated, "Without it, you do have that $200-a-barrel scenario, so it is pretty important it continues." He also noted that inventories in Western economies have been depleted, further stressing the reliance on continuous supply.

Importance of Ship-to-Ship Transfers

STS transfers involve smaller vessels collecting oil to transit the Strait of Hormuz, then reloading the cargo onto larger tankers in the Gulf of Oman. OilPrice.com reports that these transfers have seen a recent increase in activity. The publication notes that some estimates indicate oil flows out of the Strait of Hormuz are at or exceeding pre-war levels, around 20 million barrels per day (bpd) of oil and products originating from the Persian Gulf.

According to Hardy, the Middle East exported 14 million bpd of oil in the past 7-10 days, including 2 million bpd of products and 12 million bpd of crude oil. While these figures remain below pre-war levels, Hardy emphasised their importance in preventing a significant increase in oil prices. Deteriorating shipping conditions in and around the Strait of Hormuz could impede higher volumes of oil and reduce the number of barrels transiting the chokepoint.

Rising Threats and Market Impact

OilPrice.com further highlights that the number of attacks on tankers in the area has recently escalated, posing a threat to Gulf oil exporters and risking upward pressure on oil prices. Reuters, cited by OilPrice.com, reported that at least 12 attacks on oil, LNG, and liquefied petroleum gas (LPG) tankers occurred around the Strait of Hormuz in the week leading up to October 5. These reports were based on data from maritime security sources analysing incidents in the region.

The US Navy noted that activities including UAV overflights, targeted surveillance of merchant shipping, and occasional VHF hailing have persisted. The reliance on STS transfers to manage current market conditions, alongside dwindling Western inventories and heightened regional risks, underlines the potential for significant price volatility if supply routes are compromised, as indicated by Vitol's chief executive.