Al-Qaida offensive in Yemen adds to crisis, but little oil sector impact

London (Platts)--17Apr2015/823 am EDT/1223 GMT

* Mukalla port not one of Yemen's main terminals
* All Yemeni ports remain blockaded
* Bab al-Mandab strait open, but fears persist


The takeover on Thursday by al-Qaida fighters of an oil terminal and an airport in the southern Yemen province of Hadramawt adds to the crisis currently besetting the Middle Eastern country, but changes little for an oil sector already brought almost to its knees by the ongoing conflict.

Oil prices spiked Thursday when news of the al-Qaida offensive broke, but were trading lower Friday as it became clear there were few immediate implications for the oil sector.

The terminal occupied by the al-Qaida fighters is reported to be the Mukalla port, which is not one of the country's main facilities.

"Their main ports, certainly, on the tanker side are Aden, Ras Isa and Ash Shihr," one trader told Platts Friday.

And in any case, all of the country's ports have been blockaded since the end of March, meaning there has been no traffic in or out of any of the country's oil ports for several weeks.

"The last time our ship loaded from a port in Yemen was almost two weeks ago," a source with a global oil trading company said Friday.

China is the major importer of crude from Yemen -- three VLCCs a month are typically lifted from Yemen's Ash Shihr port bound mostly for China carrying Masila grade crude.

"Although the capture of a Yemeni oil export terminal may sound alarming, it is not at all clear the event will have any impact on international supplies," Citi Futures Specialist Tim Evans said in a note.

"In the current environment, we can only assume that both production and consumption are down sharply and that little crude oil could be exported in any case," Evans said.

The port closures have forced companies to halt significant chunks of oil production in the country, with the International Energy Agency earlier this week estimating that production had fallen to around 60,000 b/d in April, down from already low levels of 120,000 b/d.

The IEA added that it expected production to average just 50,000 b/d through the end of 2015, noting, though, that Yemen's oil output even before the conflict was not significant in the context of global supplies.

Shipping fears

However, there is concern that the intensifying conflict could jeopardize shipping routes through the Bab al-Mandab.

Just under 4 million b/d of oil, around 4% of total global oil supply, passed through the strait in 2013, according to the IEA, and alternative routes to Europe from the Middle East would add another 12 days to the voyage time.

Traders said Friday that the Bab al-Mandab strait was still open, but warned of the impact of any disruption in the strait.

"If shipping traffic through the Bab al-Mandab strait is hit, it will have a big adverse impact on the market," a VLCC broker in Singapore said.

Despite the increased security risk, most of the Protection and Indemnity clubs continue to cover voyages in the region and are yet to increase the premiums for ships that wanted to call on ports in Yemen, sources said.

For ships loading in or discharging in Yemen, owners typically pay an additional $10,000-$20,000 insurance premium anyway, but the premium has not risen in the past few weeks, they said.

Singapore's Maritime and Port Authority has though issued an advisory for Singapore-flagged vessels against calling at ports in Yemen due to the security risk.

Al-Qaida has been active in Yemen for years, but this latest incident comes on the back of a months-long offensive by Houthi militants looking to take control of parts of Yemen.

Continued violence prompted a Saudi Arabia-led coalition to carry out air strikes on Houthi positions over the past month.

The takeover by al-Qaida of the port and airport adds to the crisis, as both its fighters and the Houthi militants are both heavily armed and considered equally dangerous and destructive.

--Stuart Elliott, stuart.elliott@platts.com
--John Morley, john.morley@platts.com
--Sameer Mohindru, sameer.mohindru@platts.com
--Fuad Rajeh, newsdesk@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com

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