• January 28, 2023

Why the blockage of the Suez Canal matters for oil prices

The importance of the Suez Canal in Egypt became apparent to all on Wednesday as oil prices rebounded after a cargo ship ran aground blocking the critical bottleneck for oil from the Persian Gulf.

Wednesday’s “slip” in the oil market “represents the people shopping after the recent oil price drops, with the Suez triggering it,” said Michael Lynch, president of Strategic Energy & Economic Research. However, he believes the Suez Canal “will not be closed for long”.

“The Suez Canal will spare no effort to restore shipping and serve the movement of world trade,” said Lieutenant General Ossama Rabei, head of the Suez Canal Authority. according to the Associated Press.

Still, oil prices rebounded on Wednesday to offset much of their recent losses after hitting their lowest level in about six weeks on Tuesday.

Shops on Wednesday, US benchmark May West Texas Intermediate Crude Oil
CLK21, + 4.92%

CL.1, + 4.92%
rose $ 2.74, or 4.7%, to $ 60.50 a barrel on the New York Mercantile Exchange after falling 6.2% on Tuesday. May Brent crude
BRNK21, + 4.97%

BRN00, + 4.67%,
The global benchmark on ICE Futures Europe rose $ 2.79, or 4.6%, to $ 63.58 a barrel after falling 5.9% the day before.

The MV Ever Given, a Panama-flagged ship with an owner listed in Japan, turned sideways in the canal on Tuesday. Block traffic in the waterway that separates continental Africa from the Sinai Peninsula. It is estimated that 10% of all marine oil trade flows through the Suez Canal, which connects the Red Sea with the Mediterranean.

In a tweet WednesdayOil analysis firm Vortexa said the approximate residue rate is around 50 ships a day. “Delays that lead to diversions will add 15 days to a trip from the Middle East to Europe.”

In a separate tweet early Wednesday10 crude oil tankers, representing approximately 13 million barrels of oil, could be affected by the disruption to date.

By and large, however, some analysts stress that the incident at the canal is unlikely to be a permanent one.

“The Suez Canal is not a long-term problem in our opinion,” said Tariq Zahir, executive member of Tyche Capital Advisors. The biggest concern is the demand for oil, threatened by the new COVID-19 lockdowns in Europe, and fears that the situation “will repeat itself here in the US”.



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