SINGAPORE (ICIS)--Crude prices rose by more than 3% on Wednesday amid news that the grounding of a huge container vessel has effectively blocked the southern end of the Suez Canal - a key global trade route - since Tuesday.
The blockage caused by the vessel Ever Given - one of the largest container ships in the world - has resulted in a build-up of vessels waiting to transit through the waterway.
The rise in crude prices follows significant downside pressure the previous day when crude retreated amid demand worries amid a resurgence of coronavirus infections and stricter lockdown measures in Europe.
Crude prices at 09:46 GMT
Traders commented that the impact on the physical market is dependent on how long it takes to refloat the vessel.
There are expectations this should not take longer than days at the most. However, a longer delay could have a more serious impact on the crude and oil products markets.
Salvage efforts are underway to free the vessel under the control of the Suez Canal Authority (SCA).
Around 12% of global trade passes through the waterway, which connects the Red Sea and the Gulf of Suez with the Mediterranean Sea.
The Suez Canal is also a major route for the northbound shipment of Arab Gulf crude and oil products shipments to Europe and North America as well as the southbound shipment of Russian, CIS (Commonwealth of Independent States) and Mediterranean crude and oil products to Asia.
According to data from the US Government’s Energy Information Administration (EIA) the Suez Canal and the associated SUMED pipeline account for over 9% of world seaborne oil trade.
Data from SCA shows that in 2019 crude and oil product shipments totaled 238.6m tonnes with crude shipments totaling 107m tonnes (approximately 2.2m bbl/day). Oil shipments accounted for over 23% of cargo tonnage in 2019 passing through the canal in 2019.
The SUMED pipeline which runs through Egypt from the Red Sea to the Mediterranean Sea is the only alternate route to transport crude oil from the Red Sea to the Mediterranean Sea.
There are no reports that pipeline operations have been impacted. Closure of the Suez Canal and the SUMED Pipeline would require oil tankers to divert around the Cape of Good Hope in South Africa.
Focus article by James Dennis