Normalization Of Suez Canal Meets The Threat Of A Surge In Oil Prices

Giant containers on the Suez Canal (Source: Antara)

JAKARTA - Oil prices jumped more than four percent at the end of trading Friday, March 26. It happened in the middle of the closure of the Suez Canal due to giant containers.

Markets worry that global supplies of crude oil and refined products could be disrupted for weeks as workers try to unload the giant container ship blocking the Suez Canal.

Brent crude futures for May delivery lifted 2.62 dollars, or 4.2 percent, to settle at 64.57 dollars per barrel, after plunging 3.8 percent on Thursday, March 25.

Meanwhile, US West Texas Intermediate (WTI) crude futures for May delivery gained 2.41 dollars, or 4.1 percent, to close at 60.97 dollars per barrel, after falling 4.3 percent the previous day.

Brent is up 0.1 percent over the past week, while WTI is down 0.7 percent, a third weekly loss.

The rise in oil prices Friday, March 26 was a rebound from sharp losses in the previous session amid concerns that the new coronavirus lockdown in Europe will hurt demand.

Oil trade volatile

Oil trading has been volatile this week. Traders weighed the potential impact of the congestion on the Suez Canal that occurred on Thursday, March 25 against the impact of the new coronavirus lockdown.

"Today the market is bouncing back up again as change-minded traders decide that the Suez Canal blockade is actually becoming more significant for oil flows and supply deliveries than they previously concluded", said Paola Rodriguez Masiu, vice president of oil markets for Rystad Energy.

The Suez Canal on Friday, March 26 stepped up efforts to free a large ship that ran aground, after previous attempts had failed. The attempts could take weeks, with possible complications from the unstable weather.

Of the 39.2 million barrels per day (bpd) of total crude oil transported by sea in 2020, 1.74 million bpd passed through the Suez Canal, according to data intelligence firm Kpler. In addition, 1.54 million bpd of refined petroleum products flow through the canal, about 9.0 percent of global seaborne oil product trade, Kpler said.

As of Friday, March 26, there were ten ships waiting at the entrance to the Suez Canal carrying about ten million barrels of oil, Kpler said. Shaken by blockages on the Suez Canal, oil product tanker shipping rates have nearly doubled this week, and several vessels were diverted.

The oil market was also lifted by concerns over increasing geopolitical risks in the Middle East. Yemen's Houthi forces on Friday, March 25 said they were launching attacks on facilities owned by Saudi Aramco.

Prices also found support from expectations that the Organization of the Petroleum Exporting Countries and its allies or OPEC+ will keep production lower.

Goldman Sachs said it expects OPEC+ to keep production unchanged for May when the group meets next week, "with an increase of 3.4 million bpd expected in September".

Taking action a week ahead of the OPEC+ meeting, the Abu Dhabi National Oil Company (ADNOC) has deepened cuts in crude supplies to Asian customers in June to 10-15 percent from 5-15 percent in May, sources said.

In the United States, the number of oil drilling rigs rose six rigs this week to 324 rigs, data from oil services firm Baker Hughes showed.

However, the potential negative impact on demand from the coronavirus pandemic is still looming. The third wave of the German coronavirus could turn out to be the worst so far and 100.000 new daily infections are not impossible, said the head of Germany's Robert Koch Institute (RKI).

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