Oil price gets a boost over grounded ship
Blockage in Suez Canal threatens to disrupt global trade
Oil prices jumped Wednesday after one of the world’s largest cargo ships was caught sideways in the Suez Canal, blocking oil tanker traffic in the important trade waterway between Asia and Europe.
West Texas Intermediate, the U.S. crude benchmark, settled more than $3 higher at $61.18 after Panama-flagged container ship Ever Given was grounded in the Egyptian canal. Crude prices had been falling in recent days as investors became skittish over the pace of the coronavirus vaccine rollout and its promise to end the pandemic.
The Suez Canal blockage threatened to disrupt global trade, including oil and liquefied natural gas tanker traffic between the Middle East and the West. About 50 shipping vessels traverse the canal daily. Early Wednesday there were 10 oil tankers held up at the canal or en route to the canal, delaying the shipment of about 13 million barrels of crude, according to Vortexa, a Houston-based data firm that tracks tanker traffic.
“The Suez Canal is critically important to global oil trade,” said Clay Seigle, Vortexa’s managing director. “We consider it to be the top three potential choke points in the world, including the Strait of Hormuz and Strait of Malacca. These must be open not only for oil trade, but gasoline and LNG and global commerce in general.”
However, the trade disruption is expected to have a small and temporary effect on global oil prices, analysts said. That’s because the blockage is expected to be resolved quickly and most Middle East oil bound for the U.S. travels around the southern tip of Africa, not through the Suez Canal. Oil headed to Asia, where demand is growing as countries there are recovering more quickly from the pandemic, also does not have to go through the canal.
The Suez Canal blockage also comes as global demand for crude remains soft because of the pandemic. The world consumes about 96 million barrels a day of oil, 4 percent less than the 100 million barrels a day before the pandemic. As a result, the Suez Canal blockage’s effect on crude prices is likely to be muted, Norwegian energy research firm Rystad said.
“Price levels will depend on how long it will take to resolve the incident,” said Bjornar Tonhaugen, Rystad’s head of oil markets. “If the blockage lasts for more than a few days, it could impact prices.”
Seigle said he expects the blockage to be resolved quickly with minimal, short-lived impact to U.S. oil markets. One tanker filled with West Texas Intermediate crude, the London Spirit, on its way from Corpus Christi to India, crossed the Suez Canal on March 20, before the accident. There are no other U.S. exports headed for the canal, Seigle added.
But if the blockage lasts longer than a couple of days, the delays could cause a domino effect that could delay future shipments of crude and LNG, Seigle said.
“If flights are grounded at an airport due to inclement weather, it can have an outsized effect on other regional airports,” he said. “It’s the same situation here.”