When the Ever Given, a 400-meter container ship, ran aground in the Suez Canal on March 23, it choked off a busy shipping lane for the global oil and gas trade. Ten percent of global seaborne oil trade, plus a large volume of liquified natural gas (LNG) and petroleum, sails through the canal daily, mostly delivering petroleum products from the Middle East to refineries and distributors in Europe. Now at least 16 fossil fuel tankers are stuck in the jam, according to energy market analysis firm Wood Mackenzie.
In normal times, that kind of backup would cause oil prices to jump. But for most of the week, the effect was muted. Pandemic-related travel restrictions and the slow rollout of vaccines in Europe have kept the brakes on oil demand, and proved to be a more significant factor than the canal jam. But as delays have dragged on, pressure is building: By the end of March 25, oil prices were inching up.
“Today the market is up again as traders in a change of heart decided that the Suez Canal blockade is actually becoming more significant for oil flows and supply deliveries than they previously concluded,” Paola Rodriguez Masiu, vice president of oil markets at research firm Rystad Energy, wrote in a March 26 note.
A few winners are emerging from the backup. Chief among them is Russia, which could pick up customers for its oil and gas operations in the Black Sea among European oil refineries and LNG importers (although with warmer temperatures on their way in the northern hemisphere, the next few months are the slow season for LNG). “Russia is definitely the country that is not in a hurry to see the blockade resolved,” Carlos Torres Diaz, Rystad’s head of gas markets, said in a note.
But others are feeling the pinch. Plastics manufacturers in Asia could soon see the price of raw petrochemical materials like naphtha rise, Wood Mackenzie analyst Mark Williams wrote in its analysis. Some 20% of Asia’s naphtha, a precursor to benzene and other key chemicals for plastics, is sourced through the Suez Canal.
Weeks could pass before the Ever Given is freed and traffic restored, an official from the salvage company working on the incident said on March 25. The following day, an Egyptian official said the canal could be open by the end of the weekend. If the jam is indeed cleared soon, the global oil market will not face major shortages or upsets. Some ships are already choosing to take the lengthier, riskier, and more costly route around the Cape of Good Hope at the southern end of Africa, extending journeys by 10 to 12 days. Another option is to move crude through the Sumed pipeline, which runs adjacent to the canal and has room to spare, although that choice also comes with added costs.
It’s a tricky gamble for shipping companies, like choosing the right lane on a gridlocked highway: If the jam can be cleared within the next week or so, it would make more sense to just wait.