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Suez crisis: Shipping, trade in troubled waters

Dubai - The blockade has left no less than 15 other vessels stuck.

The Suez Canal, one of the busiest waterways worldwide, is facing a significant blockage following the halting of a large vessel.

Problems on the high seas

According to reports, authorities have been working for the past two days to free up the canal’s pathways after the Ever Giver — a 59-metre-wide vessel — ran aground following a sandstorm and heavy winds. The Suez Canal Authority explained that the ship, which sailed under a Panamanian flag, was on her way to the port of Rotterdam in Holland when she was suddenly knocked off course.

Currently, the Ever Giver is positioned across the vital canal through which a significant number of ships must usually pass. According to a statement by the authority, the route transports about 33 per cent of all global container shipping globally. Almost 19,000 ships passed through the canal last year, with an average of 51 ships a day.

So far, the Ever Giver’s blockade has left no less than 15 other vessels stuck. Until the blockage is cleared, these vessels will be unable to move through. Officials have stopped all ships from entering the canal, and salvage crews are currently working round the clock to free her.

Oil markets react

While many would counsel waiting out the storm, markets have reacted to the news of the Suez Canal’s blockade. This reaction isn’t much of a surprise considering how vital the pathway is to global trade.

One market that has seen significant effects has been oil. Oil prices bounced back in early trading on Friday, following a loss on Thursday.

Brent crude moved up by 43¢ (0.7 per cent) to $63.38 per barrel in the early hours of Friday. This followed a 3.8 per cent drop on Thursday. Brent might continue upward over the next few days if the canal crisis isn’t solved soon.

At the same time, West Texas Intermediate (WTI) gained significantly on Friday. This benchmark declined by 4.3 per cent on Thursday, but its losses have now corrected to just 0.8 per cent (or 49¢). WTI has held steady so far today above $59.

Supply, demand and other factors

Despite the surge in one-day trading, the oil market isn’t out of the woods yet. Major purchasers across Europe are still reducing demand due to lockdowns, and many participants understand that this Suez Canal fiasco is merely a one-time event that could lead to short-term spikes. Equally, there is evidence of increased American production in 2021 so far, but Chinese demand has continued to recover strongly

A key test will be whether oil manages to hold firm after the canal is cleared and operations return to normal. For now, activity in oil markets is likely to remain high.

As far as the Gulf and Middle East markets go, there is also a boom. The Suez Canal transports between 5% and 10% of all seaborne oil, meaning that each day the canal remains blocked will lead to a shortage of about three to five million barrels of oil.

Shipments from across the Middle East have already been affected, and the shortage of oil is likely to drive prices up for as long as this situation persists. This means that over the coming days, the Middle East and Arab oil markets could see a boom.

However, investors are also wary of a market flooding that could happen once the canal is cleared and more oil gains access to the market.

The writer is a research analyst at Exness.com. Views expressed are his own and do not reflect the publication's policy.