Oil prices rebound as Suez Canal blockage could last weeks

Suez Canal blockage

Oil prices rebound on Friday from a plunge a day earlier given that a giant cargo ship that ran aground in the Suez Canal may block the vital shipping lane for weeks, squeezing supply. 

Brent crude was higher by 43 cents, or 0.7% at US$62.38 a barrel, after dropping 3.8% on Thursday.

U.S. West Texas Intermediate (WTI) crude was down 49 cents, or 0.8%, at US$59.05 a barrel, having tumbled 4.3% a day earlier.

Both benchmarks were on track for a weekly loss of more than 3%, following a more than 6% decline last week.

At least seven vessels bearing 6.3 million barrels of crude oil have been delayed because of the accident, two northbound behind Ever Given, and five southbound, according to commodities analyst Kpler that tracks bulk goods vessels.

The trapped container ship, Ever Given with the length of four football pitches, is blocking traffic in the Suez Canal, one of the world’s busiest shipping channels for oil and refined fuels, grain and other trade between Asia and Europe.

Ever Given was built in 2018 and operated by Taiwanese transport company Evergreen Marine, ran aground and became lodged sideways across the waterway on Tuesday.

Officials stopped all ships entering the canal on Thursday, and a salvage company said it may take weeks to dislodge the cargo ship blocking the canal like a “beached whale.

 “Expectations that the blockage of the Suez Canal may last for weeks raised fears of supply tightness in oil markets,” said Nissan Securities researcher Yasushi Osada.

Renewed restrictions in Europe to combat coronavirus have weakened the physical fuel demand. Germany, Europe’s largest economy, has seen its biggest increase in coronavirus cases since January. 

The oil market was also under pressure as producers had difficulty selling to Asia, especially China. Asian buyers instead took cheaper oil from storage while refinery maintenance has reduced demand, industry sources said.

Damon Harrison
Market Analyst, IPG Group