WoodMac: Blocked Suez Canal halts key oil trade flows
Blockage of the Suez Canal by a container ship that ran aground has caused a build-up of vessels looking to transit the canal at both the northern and southern anchorages. The largest impact is on container shipping, but an estimated 16 laden crude and product oil tankers are delayed by the incident, amounting to 870,000 tonnes of crude and 670,000 tonnes of clean products, according to Wood Mackenzie data.
“These ships are currently in the canal itself or waiting at either the North entrance to the Suez Canal (Port Said Anchorage and Great Bitter Lake Anchorage) or at the Southern Suez Anchorage. There are several vessels which are located to the south of the canal entrance which we believe are scheduled to discharge at various southern Suez ports. Our data suggests that there have been no cargoes diverted to alternative routes such as around the Cape of Good Hope,” said Mark Williams, Wood Mackenzie principal analyst.
Wood Mackenzie vice-president Ann-Louise Hittle added: “Oil prices rose by about $2/bbl on the news of the blockage, but stocks of both crude and products are high in the Atlantic basin. A few days of delays in crude or product travelling through the Suez Canal to the west (Europe/Americas) should not have a prolonged impact on the Atlantic basin market.”
“After the canal reopens, the crude market will shift focus towards the April 1 OPEC+ meeting to determine production levels for May.”
Williams continued: “If the blockage is prolonged, given the weakness in European demand for middle distillates and low refinery utilization rates, oil product trade flows from Europe/Mediterranean to East of Suez will suffer a greater impact, reducing availability of naphtha, petrochemical feedstocks and fuel oil to Asia. This would be supportive for Asia product prices and widen the West-East arb in the near term.”
“The Sumed pipeline between the Red Sea and the Mediterranean is used to divert Middle East crude oil flows to Europe around the Suez Canal, so we expect minimal impact on such flows. Russian Black Sea crude exports beyond the Mediterranean will be limited by the blockage of the Suez Canal, so will need to be processed within by Mediterranean refiners.”
Impact on LNG
The impact of this disruption on the LNG market will be limited if the disruption is solved within a day or two, according to principal analyst Lucas Schmitt regarding the congestion at the Suez Canal and impact on LNG.
“Only a handful of LNG cargoes were in the close vicinity of the Suez Canal when the incident started. At this stage, we don’t expect major bottlenecks, unless the situation drags on.”
"The Suez Canal is a key channel for LNG ships – with around 8% of global LNG trade going through. So far in March 2021 a handful of cargoes have been transiting each day in both directions (until the disruption).”
"The impact could be greater if the disruption lasts longer, as the recent delays at the Panama Canal illustrated. However, the timing of this incident means it will have less impact on prices than that of the Panama since we’re entering the shoulder season for the LNG market.”
"Charter rates are currently low – around $30,000/day – but could tighten up (reflecting the additional tonne-mile needed to bypass the canal) if the disruption lasts. Shipping optimization might be complicated, particularly for ships already within the Mediterranean and Red Sea. Further delays would impact both loading and discharge schedules and disrupt some flows, mostly to the European market."
