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Analysis: Persian Gulf clean product outflows may slow as shipowners weigh risk premiums

Singapore — The volume of clean oil products flowing from the Persian Gulf into Asia could see some drops in the coming weeks as Asian traders and shipowners have become cautious about buying and loading cargoes from the region following the oil tanker attacks last week, market sources said this week.

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The traders and shipowners are assessing the risk premiums and potential rise in freight costs after the attacks near the Gulf of Oman, they added.

Persian Gulf refineries typically export gasoil and jet fuel cargoes to Europe, Africa and East Asia, with naphtha cargoes mostly flowing into North Asia.

The apparent attack on two tankers has not resulted in a slowdown in chartering in the Middle East so far, several ship owners, brokers and charterers across Asia-Pacific told S&P Global Platts. However, chartering sources in Singapore noted that an additional war risk premium, or AWRP, will have to be paid by charterers if the loading is in listed areas for "hull war, piracy, terrorism and related perils", such as the Persian Gulf.

This premium is in addition to freight and will make the delivered cost of cargoes higher.

Shipowners would have to check with their individual Protection and Indemnity Clubs, their Hull and Machinery insurers and their security teams about the risk of each charter with regards to the port of call and voyage, market sources in Singapore said.

This delays the chartering process for vessels, and owners with vessels currently on subjects have pushed all further AWRP since Friday for the charterer's account.

"Prior to last week's attacks, shipowners would have to pay 0.02%-0.025% of vessel value for War Risk premiums. Today we have seen owner being asked to pay numbers from 0.1%-0.4%. These numbers represent a premium payable for only the Gulf of Oman/Arabian Gulf and are payable on top of existing Gulf of Aden War Risk premiums," said a shipbroker Tuesday. Arabian Gulf is more commonly known as the Persian Gulf.

The median range heard was 0.25% of the vessel's value, said shipping sources.

"For an LR1 tanker, the additional cost could go from zero to $175,000--it is very different for each ship. Greek owners have inflated their hull and machinery values, some underwriters are not charging much on top," a shipbroker said.


While freight rates for moving barrels out of the Persian Gulf have not spiked, further attacks in the region, where a third of world's seaborne oil passes through, could see current assumptions change rapidly, traders said.

Term clean product supply contracts are being executed on schedule but some trading companies and end-users are scouting for alternative sources such as China, South Korea and West Coast India for spot cargoes, Asian market and trade sources said.

Major petrochemical producers from South Korea -- Asia's top naphtha importer -- including LG Chemical, KPIC, Lotte Chemical, Hanwha Total and Yeochun Naphtha Cracking Center said they will likely shift focus to consume domestic naphtha in the near term until the tensions in the Persian Gulf eases.

A source from one of the South Korean petrochemical makers said that costs to bring in naphtha and LPG from Persian Gulf suppliers will likely increase as insurance risk premiums spike, so the company would prefer to consume feedstocks domestically and from other regional Asian markets first.

"It is all going to be about [incremental] cost," a Singapore-based trader in a Middle Eastern trading house said. "If you simply isolate the freight and FOB differentials loading cost, than either differential comes off or freight eases."


Middle Eastern refiners still have other options before reducing their FOB loading premiums, Asian traders said.

"Some refiners could potentially send their cargoes to storage or even reduce their run rates, before even considering lowering their sale price," the Singapore-based trader in a Middle Eastern trading house said.

According to data by the Fujairah Oil Industry Zone, clean oil product stocks have been lower since mid-May, when the first attacks began.

Stocks of middle distillates in Fujairah averaged 2.095 million barrels in the first two weeks of June, down 14% for the same period in May when it stood at an average of 2.434 million barrels, data showed.

During the same period, stocks of light distillates in Fujairah declined by 6% to 9.994 million barrels in the first two weeks of June, or down from 10.617 million barrels in first half of May.

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-- Wanda Wang,

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-- Wendy Cheong,

-- Edited by Kshitiz Goliya,