Oil Rebounds on Fears Suez Canal Blockage May Last Weeks

By Al Attiyah Foundation

Oil prices rose more than 4% on Friday on worries global supplies of crude and refined products could be disrupted for weeks as workers try to dislodge a giant container ship blocking the Suez Canal. The rebound followed a sharp decline in the previous session on concerns that fresh coronavirus lockdowns in Europe would hurt demand. Brent crude rose 4.2%, to settle at $64.57 a barrel, after dropping 3.8% on Thursday. West Texas Intermediate (WTI) crude gained 4.1%, to settle at $60.97 a barrel, having tumbled 4.3% a day earlier. Brent rose 0.1% over the last week, while WTI dropped 0.7%, its third weekly loss.

Oil trade was volatile last week, as traders weighed the potential impact of the Suez Canal blockage which happened on Tuesday, against the effect of new coronavirus lockdowns. The Suez Canal authorities stepped up efforts on Friday to free the stuck mega vessel after an earlier attempt failed. Efforts to free it may take weeks, with possible complications from unstable weather. 

Of the 39.2 million barrels per day (bpd) of total seaborne crude in 2020, 1.74 million bpd went through the Suez Canal, according to data intelligence firm Kpler. Additionally, 1.54 million bpd of refined oil products flow through the canal, about 9% of the global seaborne oil product trade. On Friday, there were 10 vessels waiting at the entry points of the Canal carrying around 10 million barrels of oil.

Reeling from the blockage in the Suez Canal, shipping rates for oil product tankers have nearly doubled last week, and several vessels were diverted. The oil markets were also lifted by worries over escalating geopolitical risk in the Middle East, as Yemen's Houthi forces said they had launched attacks on Saudi Aramco facilities. 

Asian Spot Prices Rise as LNG Tankers Diverted From Suez 

Asian spot prices for LNG rose this week as expected cargoes face delivery delays due to a large container ship stuck in the Suez Canal, causing tankers to be diverted. U.S. President Joe Biden said his administration was looking at what it could do to help after the 400-meter long Evergreen ran aground in the vital trade waterway on Tuesday due to strong winds. The average LNG price for May delivery into Northeast Asia was estimated at about $6.80 per million British thermal units (mmBtu), up 25 cents from the previous week. 

Seven LNG tankers are being diverted away from the Suez Canal after traffic was suspended through the key waterway where the container ship has been stuck since Tuesday. Three of the tankers are being diverted towards the longer route around the Cape of Good Hope, with the majority of the other diverted tankers originally signaled for the Suez Canal now heading elsewhere. The blockage may delay delivery to Europe of about 1 million tonnes of LNG on 10 vessels if it lasts for two weeks, according to researcher Rystad Energy.

Planned maintenance in Qatar also boosted prices last week, while spot demand from buyers in Asia was firm. The majority of buying activity was seen in the far east, with cargos being purchased in Japan and South Korea. China's Shenzhen Energy also bought a cargo for early May delivery at about $6.80 per mmBtu. The market now moves into re-stocking season, with buyers in Europe and Asia trying to restock inventories after the cold winter caused demand to spike. 

In the U.S, natural gas futures were little changed on Friday as rising demand to meet near-record LNG exports was offset by expectations that utilities started adding gas to storage during the mild weather last week. On its second to last day as the front-month, gas futures for April delivery fell 0.5%, to settle at $2.56per million British thermal units. Traders noted the 200-day moving average has become a strong price floor or technical level of support. The front-month has not settled below the 200-day since September 2020.

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