U.S. Shale Producers Benefit as Oil Disruptions Plague Middle East

Oil supply disruptions in hot spots around the world—from Iran’s seizure of a U.K.-flagged tanker in the Persian Gulf to the shutdown of Libya’s largest oil field at the weekend—are putting pressure on the cost of buying and shipping crude. But the turmoil is benefiting U.S. shale producers, whose oil fields and tankers are partly filling the void.

Iran’s Islamic Revolutionary Guard Corps Friday seized two British-connected tankers that were on their way to Saudi oil terminals in the Persian Gulf. The IRGC released one of the ships, but forced the second to anchor near the Iranian port of Bandar Abbas, where it was still held on Sunday. 

Tensions have escalated following repeated attacks on tankers crossing the key waterway and add to concerns over global oil supply. Crude production in Venezuela and Iran—both under U.S. export bans—has declined by a combined 2.1 million barrels a day in the past year.

“Markets will probably react negatively…with prices climbing and expectations of supply loss emerging,” said Richard Nephew, a senior research scholar at the Center for Global Energy Policy at Columbia University, in a note late Friday.

Disruption to the global oil supply has deepened after Friday’s seizure. The U.K.’s Department of Transport has requested that all British-flagged ships now avoid the Strait of Hormuz—the waterway that connects the Persian Gulf to the Gulf of Oman—until further notice. As a result, eight U.K. vessels, including several tankers, have remained anchored in the Gulf region, unable to move, said British consulting firm Lloyd’s List Intelligence.

In yet another supply disturbance, exports from Libya’s largest oil field were at a standstill on Sunday. The pipeline connects the Sharara field to the Zawiya oil terminal with a flow of 290,000 barrels a day of high-quality crude. It was shut on Saturday, likely as an act of sabotage, the country’s National Oil Co. said. An NOC official said it had reopened Monday.

Libya is in the grip of a war between an internationally-recognized government and a renegade regime. Militants have closed the pipeline in the past, seeking protection payments, but by late Sunday no one had claimed credit for the disruption.

Incidents in the Persian Gulf over the past few months have yet to have a sustained effect on oil prices. The muted reaction belies the severity of the situation and signals that the market believes the U.S. will pick up the slack in the event that war breaks out in the Middle East, said oil analysts at RBC Capital Markets in a note to investors Sunday.

“Oil prices have become a broken barometer for gauging the rising pressure in the region and are now much more of a lagging risk indicator,” RBC said.

U.S. production has been cushioning the blow. On Thursday, Brent prices dropped by 2.9% to $61.93 a barrel in afternoon trading, despite the seizure of an Emirati-based tanker by Iran. Investors focused on a huge rise in U.S. fuel stockpiles, including a 3.6 million barrel jump in gasoline inventories, which have been buoyed by a boom in domestic U.S. production.

Rising international sales from the U.S. have partly made up for shortfalls due to global disruptions. U.S. oil exports reached a record rate of 3.77 million barrels a day in the week to June 21, up 348,000 barrels a day from the previous week. Last month, 21 large tankers were loaded with crude in the U.S. Gulf of Mexico, well above the monthly average of 13 so far this year, according to RBC.

U.S. energy companies don’t view the recent surge as short-lived.

Enterprise Products Partners

LP is boosting the crude-exporting capacity of its facility on the Houston Ship Channel by about 30% by building an additional loading dock, the company said earlier this month. The Houston company estimates that U.S. crude exports will more than double by 2025, to 8 million barrels a day.

Even so, the impact of Persian Gulf tensions on the cost of shipping oil is likely to be more dramatic, shipping professionals say.

Following the June attacks on two tankers in the Gulf of Oman, the average day rate for large tankers shot up 69% to $30,759, according to

Jefferies Financial Group
Inc.

The average day rate has since dropped, to $23,339 last week, the investment bank said. The average day rate was about $14,000 last July, according to brokers.

Randy Giveans, an analyst at Jefferies, said he expects prices to surge anew following the escalation of hostilities between Iran and the U.S. and its allies. Insurance premiums on trips to the Persian Gulf have already jumped to as much a 4% of the value of the cargo in recent weeks, up from a typical 1%, Mr. Giveans said. Hazard pay demands from captains and crew are piling up as well, he said.

“Crews and captains are a little more reticent to go into those areas,” Mr. Giveans said, adding that he has heard of ships with full cargoes of fuel floating off the United Arab Emirates, whose captains refuse to pass through the Strait of Hormuz.

Shipping executives say the dangers are offset by higher fees. Vessels crossing the Gulf are booked for more than $50,000 a day, compared with $27,000 for other routes. Friday’s incidents in the Gulf are set to increase that cost.

“When you have chartered your ship for an extended period, you sail where the customer wants,” said a Greek shipowner who operates more than 20 tankers. “The ship, crew and cargo are insured, but a seized vessel is a big money burner, regardless.”

Write to Benoit Faucon at benoit.faucon@wsj.com, Costas Paris at costas.paris@wsj.com and Ryan Dezember at ryan.dezember@wsj.com

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