Russia is in no hurry to see the Suez Canal re-opened
When the Ever Given, a 400-meter container ship, ran aground in the Suez Canal on March 23, it choked off a busy shipping lane for the global oil and gas trade. Ten percent of global seaborne oil trade, plus a large volume of liquified natural gas (LNG) and petroleum, sails through the canal daily, mostly delivering petroleum products from the Middle East to refineries and distributors in Europe. Now at least 16 fossil fuel tankers are stuck in the jam, according to energy market analysis firm Wood Mackenzie.
In normal times, that kind of backup would cause oil prices to jump. But for most of the week, the effect was muted. Pandemic-related travel restrictions and the slow rollout of vaccines in Europe have kept the brakes on oil demand, and proved to be a more significant factor than the canal jam. But as delays have dragged on, pressure is building: By the end of March 25, oil prices were inching up.
“Today the market is up again as traders in a change of heart decided that the Suez Canal blockade is actually becoming more significant for oil flows and supply deliveries than they previously concluded,” Paola Rodriguez Masiu, vice president of oil markets at research firm Rystad Energy, wrote in a March 26 note.
A few winners are emerging from the backup. Chief among them is Russia, which could pick up customers for its oil and gas operations in the Black Sea among European oil refineries and LNG importers (although with warmer temperatures on their way in the northern hemisphere, the next few months are the slow season for LNG). “Russia is definitely the country that is not in a hurry to see the blockade resolved,” Carlos Torres Diaz, Rystad’s head of gas markets, said in a note.
But others are feeling the pinch. Plastics manufacturers in Asia could soon see the price of raw petrochemical materials like naphtha rise, Wood Mackenzie analyst Mark Williams wrote in its analysis. Some 20% of Asia’s naphtha, a precursor to benzene and other key chemicals for plastics, is sourced through the Suez Canal.