Oil’s taking a break Thursday from the rally driven by the Suez Canal mishap, but if the crucial waterway isn’t cleared soon, tighter global supplies of liquid natural gas may turn out to be just as big of a concern.
“What a single vessel can do to the global oil market is remarkable,” said Bjornar Tonhaugen, head oil markets at Rystad Energy. “The stuck vessel in the Suez Canal created the visual definition of a supply route bottleneck, effectively disrupting one of the world’s busiest routes for all commodities.”
The oil market scrambled Wednesday “to price in the supply delivery trouble that the Suez blockade created but such events — after they get resolved — have no lasting impact to oil prices, only creating interim price spikes,” said Tonhaugen, in emailed commentary.
Prices for U.S.
crude futures rallied by roughly 6% on Wednesday, but both fell in Thursday dealings as traders waited to see if the massive ship, Ever Given, which rain aground on Tuesday, can been soon cleared to allow shipping through the route to resume.
The best chance to move the container ship may come at peak tide on Sunday or Monday, according to a report from Bloomberg.
“If the high tide fails to move the ship, we could see another short squeeze in oil with extended drawdowns in inventories,” Phillip Streible, chief market strategist at Blue Line Futures, told MarketWatch. He also expects prices to move higher as widespread COVID-19 vaccinations and easing business restrictions help support the economic recovery, and energy demand with it.
The canal connects the Red Sea with the Mediterranean and tankers carry natural gas, as well as oil, through the waterway. An estimated 9% of the world’s seaborne oil trade and roughly 8% of global liquified natural gas (LNG) flowed through the canal and the Sumed (Suez-Mediterranean) pipeline in 2017, according to data from the Energy Information Administration. Most news outlets reported that seaborne oil figure at 10%.
“It’s not often that LNG vessel traffic is disrupted, and the current blockade at the Suez Canal can be considered as a major obstacle for LNG flows to Europe,” said Rystad Energy’s Carlos Torres Diaz, head of gas and power markets.
This blockade is having “great implications on global trade, including LNG, as shipments to Europe from one of the world’s largest LNG producers — Qatar — essentially all pass through there,” he said in commentary emailed Thursday.
Close to 260 LNG cargoes were sent from Qatar to Europe via the Suez Canal in 2020, or an average of five per week, said Diaz.
Assuming that average, “around 1 million metric tons of LNG could be delayed for delivery to Europe, if the blockage last for two weeks,” Diaz said. “In a worst-case scenario of the Canal being blocked for four weeks, then there would be 2 million [metric tons] of delayed cargo deliveries.”
Strong export demand had already been helping to keep natural-gas prices afloat, with U.S. LNG feedgas recently hitting an all-time high at 11.9 billion cubic feet per day, according to a note dated Wednesday from Christin Redmond, commodity analyst at Schneider Electric.
She said that level has eased to around 11.5 billion cubic feet per day in the past few days, but “short-term demand expectations are bolstered” by the blockage of the Suez Canal. The mishap “may temporarily prevent Qatari LNG cargoes from reaching Europe, allowing U.S. LNG exporters to potentially send additional cargoes.”
So far, natural-gas prices haven’t seen a significant reaction to the blockage of the Suez Canal. In Thursday trading, the front-month April natural-gas futures contract
was up 1.8% at $2.56 per million British thermal units. Prices edged up by 0.4% Wednesday.
There have been modest increases in LNG prices in Europe and Asia, of around 20 cents to 30 cents per million British thermal units, said James Williams, energy economist at WTRG Economics.
He said doesn’t expect to incident to have a significant impact on U.S. prices, but “we may end up shipping a few extra cargoes to Asia.”
That will take longer too. It takes the U.S. about 42 days to ship to Asia through the Suez Canal, and a shipment through an alternative route around the Cape of Good Hope adds three to four days, said Williams.