What can the blocked Suez Canal do to oil prices?

The blocking of the Suez Canal helped the owners of oil tankers overcome the problem of their losses, Bloomberg reports. On Wednesday, March 24, the profit of supertankers amounted to $626 per day. The owners of such vessels have received profit for the first time since February 2, the agency wrote citing data from the Baltic Stock Exchange.

On March 23, the giant container ship Ever Given blocked one of the most important sea routes in the world - the Suez Canal. Experts believe that the ship almost as long as the Empire State Building will stay there for weeks. If true, it will be the longest stop in the work of the Suez Canal since the 1967 and 1973 Arab-Israeli wars.

The Suez Canal is an important artery for oil deliveries from the Middle East to Europe and the United States. It is also used for the transportation of oil products, including fuel oil, to Asia. The US Energy Information Administration estimates that the Suez Canal route accounts for ten percent of world's oil shipments and eight percent of liquefied natural gas (LNG) shipments. As of March 25, as many as 185 ships are waiting to cross the canal.

Before the blocking of the Suez Canal, shipowners suffered daily losses of more than $6,000 for two weeks. After OPEC+ countries extended their cuts in production and exports of raw materials in February, traffic volumes decreased, which caused an increase in the number of vessels available for charter and a drop in prices. The blockage of the canal has led to an increase in the cost of shipping in all directions.

Concerns about possible disruptions in oil supplies have had a positive impact on the raw material market.

  • Prices for Brent crude oil on the London ICE exchange on Wednesday, March 24, added about three percent compared to the previous day.
  • The price of May futures rose to $62.7 per barrel.
  • Shortly before that, the price of Brent fell by about six percent, to $60.71 per barrel due to fears that the demand for fuel could be weaker than expected.
  • In addition, demand may decrease due to additional quarantine restrictions in a number of countries, such as Germany and France.

Experts believe that the stuck container ship may result in the shortage of oil supplies, although in a short-term perspective only. A short stop in the work of the canal is not going to lead to critical consequences, but it may contribute to price increases, although this effect is not going to last long.