Hormuz Strait CPP Analysis
Nov. 1, 2024
In a Hormuz Strait closure scenario, the CPP market would be materially affected as there are no logistically viable options for CPP tankers to bypass. Therefore, we anticipate all CPP exports will be diverted to other supply regions in the “Strait Disruption” scenario, adding a net of 62 MR2 demand equivalents. Based on our AIS tracking data, we have captured on average 2.47 million b/d of clean refined products sailing from the Arabian Gulf in 2024 through the Hormuz strait. Unlike crude or NGL exports, there is no operational pipeline in the Middle East to bypass the Hormuz Strait. Therefore, we anticipate all 2.47 million b/d of CPP exports will be diverted to other supply regions in the “Strait Disruption” scenario. Similar to the DPP side, we foresee bearish demand impact on the larger tanker sector (i.e., naphtha flows to Asia) while MR2s are expected to find the largest support providing the flexibility on their deployment. To measure the overall demand side impact on the CPP tanker fleet, we have converted LR2 and LR1 demand impact into MR2 vessel equivalent. Based on our calculation, the disruption on Hormuz Strait is expected to add a net of 62 MR2 demand equivalent.
Also worth noting is that European gas continues to remain vulnerable to disruption, as tensions in the Middle East have kept the market on edge with 20% of gas transiting through the Strait of Hormuz. Europe’s reliance on global flows of liquefied natural gas — also vulnerable to outages and competition from other regions — keeps the region exposed to potential price spikes, especially as its heating season gets underway. The closure of Hormuz Strait would also significantly impact the LNG exports out of Qatar and LPG exports from the Middle East region, we anticipate a strong gas-to-oil switch in the winter months under this scenario, boosting both diesel and naphtha demand and of course, prices. The diesel shortage in the West of Suez would boost East-to-West flow on LR2 tankers, mainly from the Far East instead of the Middle East due to the disrupted export capability.
Figure 1: Hormuz Strait CPP Volume Figure 2: MR2 Equivalent Demand
Source: McQuilling Services, AIS Tracking
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