Oil rises as shipping remains paralyzed in the Suez Canal, but US prices post a weekly loss


Crude oil futures ended higher on Friday when a 220,000-ton cargo ship blocked the Suez Canal for the fourth day in a row and efforts to dislodge one of the world’s largest container ships from the critical commercial waterway were unsuccessful. success.

The narrow channel is a crucial bottleneck for Persian Gulf oil and uncertainty over how long it will take to pull out the tanker has complicated the near-term outlook for energy assets.

Read: Why the blockade of the Suez Canal matters to oil prices

On top of that, energy traders are struggling with a protracted trade lockdown in parts of Europe to combat the coronavirus pandemic, which implies lower demand for energy products.

Those two events have been shaking up crude prices, which have been vulnerable to headline news after US and international benchmark oil contracts fell into correction earlier this week, defined as a drop of to minus 10% from a recent peak.

“The fundamental backdrop to oil markets has deteriorated this week as estimates of consumer demand are revised down, but the short-term uncertainties surrounding the Suez debacle are preventing prices from materially declining. “said Tyler Richey, co-editor of Sevens Report Research.

West Texas Intermediate Crude for May delivery CL.1,
+ 3.69%

CLK21,
+ 3.69%,
the US benchmark added $ 2.41, or 4.1%, to settle at $ 60.97 a barrel on the New York Mercantile. Prices fell 4.3% on Thursday, giving up much of the 5.9% increase seen on Wednesday.

Read: The energy sector leads the increase so far this year for raw materials; lean pork, steel prices skyrocket

Can crude Brent BRNK21,
-0.37%

BRN00,
-0.33%
added $ 2.62, or 4.2%, to $ 64.57 a barrel on ICE Futures Europe, following a 3.8% drop a day ago. The global benchmark index saw a 6% rise on Wednesday.

Check out: Suez Canal Accident Concerns Shift Towards Natural Gas

It is not clear how long the blockade of the Suez Canal will remain, but some experts are predicting weeks instead of days. “This now looks like it will take a few weeks,” said the Wall Street Journal, Anoop Singh, Singapore-based head of tanker analysis at shipping agency Braemar ACM.

It is estimated that 10% of the total oil trade by sea passes through the Suez Canal, which connects the Red Sea with the Mediterranean Sea.

Reuters reported that the owner of the container ship MV Ever Given, Shoei Kisen, denied speculation that it could be recalled on Saturday night, which would have set the stage for falling energy prices.

The lockdown has disrupted the flow of oil through the channel, but during the week WTI crude lost about 0.8%, while Brent crude rose 4 cents, based on first-month contracts, according to Dow Jones Market Data.

“The market impact of the logistics transportation nightmare should be limited to regional physical markets,” because global oil reserves remain “historically high,” Richey told MarketWatch. “Even if the key shipping route remains blocked for weeks, major oil consumers should be able to absorb the disruptions with healthy local storage.”

The Energy Information Administration on Wednesday reported a fifth consecutive weekly increase in U.S. crude inventories, which currently stand at nearly 503 million barrels, about 6% above the first-year average for this time of year. .

Data from Baker Hughes BKR on Friday showed the number of active US rigs drilling for oil rose from six to 324 this week, also pointing to the potential for higher production.

Given the ample supply of crude, traders have focused on “deteriorating fundamentals due to European lockdowns and subsequent downward revisions to estimates of consumer demand for the medium term,” Richey said.

Still, in a note dated Friday, analysts at Goldman Sachs see the drop in prices as “far superior to changes in oil fundamentals.” They expect a return of the blockades for most of the European Union region through April, but said the impact on transport would likely remain modest.

Goldman Sachs expects global demand to accelerate by 4.5 million barrels per day in the third quarter compared to the first quarter, although that is 800,000 barrels per day less than its previous forecast.

Analysts also expect a “slower rise” in output from the Organization of the Petroleum Exporting Countries and its allies, known together as OPEC +, this spring to “help offset” both the slower recovery in market demand. emerging countries such as the European Union and the increase in Iranian exports. , “With global demand still set to increase dramatically during the summer.” OPEC + will meet on Thursday.

Completing the action in the Nymex energy market, April Gasoline RBJ21,
+ 2.43%
rose 2.4% to $ 1.97 a gallon, finishing about 1.3% higher for the week, while April heating oil HOJ21,
+ 3.48%
it added 3.6% to $ 1.81 a gallon, for a weekly decrease of 0.7%.

Read: It looks like gas prices will fall, but not for long

April natural gas NGJ21,
-0.23%
it closed at $ 2.55 per million British thermal units, 0.5% less in the session, but 0.9% more in the week. The contract will expire at the end of the session on Monday.

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