By Sharon Cho (Bloomberg) Oil retreated as traders monitored efforts to dislodge a massive ship blocking the Suez Canal, after two wild days that saw prices whipsaw around 6% in both directions.
Futures in New York slid 1.6%, the latest sizable move this week. Work to re-float the container ship that’s stuck in the canal — a key trade route for crude flows — was expected to begin early Thursday in Egypt. The best chance of freeing the vessel may not come until Sunday or Monday.
The bounce in oil following the canal incident gave the market a much needed breather after a series of factors including softening demand combined to drive prices to a six-week low on Tuesday. U.S. crude stockpiles, meanwhile, have continued to climb, although domestic fuel consumption has expanded.
Despite the recent selloff, oil is still up more than 20% this year and there is confidence in the longer-term outlook for demand as coronavirus vaccinations accelerate worldwide while OPEC+ output cuts tighten supply. The alliance is scheduled to meet next week to decide production policy for May in a gathering that will be keenly watched by the market.
“It all got a bit too excited earlier with talk about supercycles and massive stockdraws in the first quarter,” said Paul Horsnell, head of commodities research at Standard Chartered. That was “never on the cards, the big stock draws come later.”
The prompt timespread for Brent flipped back into a bullish backwardation on Wednesday after ending in a bearish contango in the previous session for the first time since January. It was 17 cents in backwardation on Thursday, compared with 67 cents at the start of the month.
Tugs and diggers have so far failed to dislodge the container ship in the Suez Canal, which has led to a gridlock of vessels waiting to pass. The spring tide on Sunday or Monday will add extra depth and allow for more maneuvering, said Nick Sloane, the salvage master responsible for refloating the Costa Concordia.
Related Video: Watch How To Salvage A Grounded Suez Canal Mega-Ship
Suez Canal Crisis Revives Fortunes of Hard-Hit Tanker Owners
It’s taken a maritime crisis to offer hard-hit oil tanker owners an unexpected reprieve, although the relief is expected to be short-lived.
Shippers have been making losses on the delivery of cargoes since the start of February after OPEC+ cut output and exports, while the number of available ships swelled. The Suez Canal mishap is lifting vessel rates across the board, including a Middle East-to-China route, which is unaffected by the blockage.
Earnings for supertankers were at $626 a day Wednesday, flipping to a profit for the first time since Feb. 2, after shippers were hit with daily losses of more than $6,000 at times over the past two weeks, Baltic Exchange data show.
The blockage will “only be short-term positive,” said Rahul Kapoor, global head of maritime analytics and research at IHS Markit. “The key for any meaningful recovery in the tanker market hinges on increasing OPEC oil production and global exports. No signs of that are imminent.”
See also: Shut Suez Means Around 2M B/d of Oil Flows Are Halted: Braemar
The Suez Canal is a crucial artery for crude flows from the Middle East to Europe and the U.S., and oil products such as fuel oil to Asia, with the blockage yet to cause any re-routing of cargoes. However, there has been some interest from companies looking to book tankers with options to avoid the canal, according to Fearnleys.
If the blockage is prolonged, Very Large Crude Carriers would be preferred over the smaller Suezmax and Aframax vessels to sail around South Africa, taking the longer route via the Cape of Good Hope, Braemar ACM Shipbroking Pte said in a note.
Related Article: Slow But (Almost) Ready – Suez Salvage Team May Be Delayed Another 5 Or 6 Days
With assistance from Alex Longley. Copyright 2021 Bloomberg
Sign up for our newsletter