Increased Strait of Hormuz attacks hamper growing LPG shuttle trade

The driving force behind the rally in Mideast Gulf LPG exports since June is losing steam as attacks on vessels reemerge, reducing LPG supply in the East at the same time demand rises seasonally.

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Market & Trading Calls:

• Shuttle trades through the Strait of Hormuz followed by ship to ship (STS) transfers have buoyed Mideast Gulf LPG exports since June as Gulf producers shouldered the risk of Hormuz transits.
• Recent attacks on vessels in the Strait have reduced STS volumes significantly so far in October, trimming supply in the East just as seasonal demand picks up and putting further upward pressure on Far East LPG prices.
• H1 October volumes could be revised upwards as dark transits are identified, but transit risk is likely to remain elevated through October as US President Trump’s stated plan to wait to escalate until after the early November elections gives Iran a window to reassert control over the Strait.

From March to May this year, risky Hormuz transits and curtailed production kept a lid on LPG exports from the Mideast Gulf despite strong demand. As crude and LPG production rebounded and transits improved while risks remained, Gulf producers took it upon themselves to facilitate exports. A rebound in Gulf LPG exports beginning in June was driven by NOC-connected vessels shuttling cargoes outside of the Gulf for STS transfers.

The rebound has not extended into H1 October, however, as renewed Iranian attacks on vessels in the Strait of Hormuz have broadly reduced transits, including the LPG STS shuttle trade. Indeed, H1 October shuttle trade exports are on pace for just 177 kbd, vs 432 kbd in September.

Mideast Gulf LPG exports by STS status and origin country (kbd) and STS% of total exports (RHS)

Source: Kpler. Direct exports include all Iranian cargoes regardless of STS status.

Meanwhile, a portion of Iranian LPG exports have evaded the US blockade since it was reimposed in mid-July, allowing cargoes to reach destinations despite crude loadings and exports grinding to a halt. However, the undelivered share of Iran’s LPG exports has increased in recent months suggesting many loadings are still stuck behind the blockade line.

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Iran LPG and Crude/Co exports by trade status (%)

Source: Kpler

The combination of reduced STS exports and increasingly stranded Iranian cargoes is setting up for a low month of Mideast Gulf exports in October, just as LPG demand seasonally firms and countries reluctant to restock earlier in the year face cooling temperatures. Exports could rally in H2 October, and delays related to identifying dark transits could increase H1 October data, but reduced Mideast Gulf LPG exports for October appear likely regardless. Transit risks will remain elevated in the coming weeks as US President Trump has emphasized that no escalation will occur until after the elections in early November, leaving the door open for continued Iranian attacks on vessels transiting the Strait and dimming the near-term prospects of the STS shuttle trade.

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