By Geoffrey Smith
biedex.markets — Crude oil prices rose sharply again on Friday as the market moved to price in a steep rise in uncertainty over global supplies due to the ongoing blockage of the Suez Canal.
Reports have increased over the last 24 hours of shipping companies starting to re-route tankers away from the Suez Canal and around the Cape of Good Hope, the southern tip of Africa. Such diversions add some 16 days to sailing times for cargoes going from the Gulf to Rotterdam, Europe’s most important port, or 12 days for a cargo going from the Gulf to New York.
Sentiment in the U.S. market was also underpinned by the release of the lowest jobless claims figures in a year on Thursday and by President Joe Biden’s announcement of an accelerated timetable for vaccinating Americans against Covid-19, a key pre-requisite for the return to normal economic and social life.
By 11:20 AM ET (1520 GMT), U.S. futures were up 4.1% at $60.95 a barrel, while crude, the global benchmark, was up 3.9% at $64.37 a barrel.
The market has been stood on its head by the blockage of the Suez Canal, which carries over one-tenth of the world’s seaborne crude trade on a normal day. In addition to crude cargoes, the blockage is also holding up cargoes of refined products – such as naphtha, the key feedstock for plastics – and liquefied . That’s causing outsize volatility in Asian markets that are the final destination for most such cargoes.
Bloomberg reported that nearly 300 ships were still waiting to enter the canal on Friday, even so. That’s a rise from 185 on Thursday. Around one-third of those were carrying crude or other energy products.
Up to a point, volatility in local crude markets can be offset to a degree by drawing on stockpiles that are still above historic averages. Moreover, the key trade route of the Persian Gulf to China and India is unaffected by the blockage. Hopes of a temporary increase in production by key Gulf producers were dashed on Friday, however, after Saudi Arabia told India to draw down its stockpiles instead. An Indian government minister called the Saudi move “undiplomatic”.
Reuters also reported that the Abu Dhabi National Oil Company had reduced supplies to Asian customers this week, mindful of the need to be seen to conforming to the OPEC+ pact on output restraint when the bloc meets again next week.
Elsewhere, analysts at Goldman Sachs (NYSE:) said that the recent repricing in reaction to the latest wave of Covid-19 cases in Europe, India and Brazil has likely been overdone. Damien Courvalin and his team said they still expect global demand to rise by some 4.5 million barrels a day between the first and third quarters of the year.