BLOCKAGE COULD PUSH GAS PRICES UPWARD
Container ship stuck in Suez Canal blocking oil tankers carrying fuel
• Among stranded vessels are 16 oil tankers.
With gasoline prices already on the rise, a grounded cargo ship halfway around the world may add one more element of upward pressure and push the average price of regular gas in California past the $4 per gallon mark.
The massive container vessel that turned sideways during high winds in a sandstorm Tuesday has blocked the Suez Canal in both directions. Despite efforts of dredgers and tugboats to push the vessel out of the way, officials said Thursday it could take days or even weeks to dislodge the 200,000-ton ship called the Ever Given.
The 120-mile canal in Egypt is one of the busiest trade routes in the world and more than 200 large container ships have been left idling in the waters outside the canal, like 18wheelers stuck on a freeway traffic jam.
Among the commodity-carrying ships are 16 oil tankers carrying 870,000 tons of crude and 670,000 tons of clean oil products such as gasoline and diesel, according to the Wood MacKenzie consulting firm.
“If the issues in the Middle East persist, that may indeed affect pricing here” in California, said Jeffrey Spring, corporate communications manager for AAA of Southern California, which tracks gas prices in the region.
According to AAA, the average price of a gallon of regular gasoline in San Diego came to $3.93 on Thursday, two cents higher than a week earlier and up 73 cents a gallon since Christmas. The last time the
average price in San Diego for regular gas topped $4 a gallon was Nov. 13, 2019.
About half of crude oil supply to California refineries comes from foreign sources and according to the California Energy Commission, in 2019 Saudi Arabia accounted for 25.6 percent of that (87.6 million barrels). Iraq, another Middle Eastern country, accounted for 17.2 percent (58.7 million barrels), the third-highest.
Saudi Arabia is the second-largest exporter of oil through the Suez Canal, behind Russia.
But David Hackett, president
of Stillwater Associates, a transportation energy consulting company in Irvine, said the blockage at Suez will mostly affect gasoline stocks in Europe. The impact on California may come if the price of Brent crude — the international benchmark price — or West Texas Intermediate crude — the domestic benchmark price — increase sharply should the grounded ship lead to reductions in global supplies.
“Markets are going to be turbulent until all this is resolved,” Hackett said.
Gasoline prices have increased steadily in recent months across the country. According to AAA, the average price in the U.S. for a gallon of regular on Thursday was $2.87, 20 cents higher than a month ago. The average in California was $3.89, higher than any other state.
Analysts have largely attributed the increase in prices to the easing of COVID-19 stay-at-home orders and the rollout of vaccines that have increased driving.
Last year at this time, as lockdown orders went into effect, the opposite happened — with commuting to work and school eliminated for many, prices dropped dramatically. The price of regular gas in San Diego fell as low as $2.77 a gallon on May 5, according to AAA.
Another reason for the recent rise in prices is due to California gas stations making their annual switch from winter to summer-blended fuel, which can typically add about 12 cents per gallon to the cost.
In addition, Spring said the hard freeze that led to widespread power outages in Texas last month had a secondary effect on California. Texas refineries supply a significant amount of gasoline to Arizona. But refineries in the Lone Star State had trouble coming back online due to the cold weather and California refineries were called on to send additional gasoline via pipeline to Arizona.
“They had to send more gasoline to supply Arizona because the Texas refineries just couldn’t do it,” Spring said.
Upon taking office, President Joe Biden revoked the cross-border permit for the Keystone XL pipeline that was poised to send about 800,000 barrels of oil a day from Canada to the Texas Gulf Coast and issued a 60day suspension on new drilling permits and leases on federal land. But most fuel analysts say it’s too early to attribute those two moves to the recent run-up in prices.
There are some hopeful signs, Spring said. The pace of price increases has been slowing on news of wholesale prices dropping and as of March 19, about 12 million barrels of crude oil remain in stock from California refineries.
“Right now, there is plenty of fuel — gasoline and oil — in storage,” Spring said. “I think we should be OK.”
In the meantime, Spring says drivers can do a few things to reduce the effect of high gasoline prices, such as shopping around. Apps from AAA and other outlets such as GasBuddy can sort out the lowest prices in a given area for motorists.
“And the most important thing (motorists) can do is to moderate their driving habits,”
Spring said. “Forget about those jackrabbit starts and heavy braking. Things like that are the most significant thing that reduce fuel use.”
As for the grounded vessel at the Suez, officials of the Japanese company Shoei Kisen that owns the Ever Given have apologized for the incident. No crew members were injured and none of the containers were damaged.
Eight tugboats have been unable to dislodge the Ever Given, which is 1,300 feet long — about the height of the Empire State Building — and 193 feet wide.
An average of 51.5 ships pass through the canal every day, carrying everything from grain to oil to machine parts, even furniture. About 12 percent of total global trade of all goods goes through the Suez Canal, according to Reuters.
Trade experts say no incident like this has ever happened in the canal’s 150-year history. A higher tide due on Sunday may help the rescue efforts.
“It is like an enormous beached whale,” the CEO of the Netherlands-based company Boskalis, one of the rescue teams trying to free the ship, told a Dutch television program.