Suez Canal Halts Traffic Amid Ever Given Blockage; Oil Prices Slump

Salvage experts caution that removing the 224,000 ton Ever Given could take weeks, adding yet another near-term risk to fragile global supply chains.
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Suez Canal officials cautioned Thursday that it may take longer than expected to remove the 224,000 ton Ever Given after it ran aground early yesterday, creating a dangerous and disruptive snarl of shipping traffic on the world's most important trade waterway.

Oil prices fell further into the red, however, as concerns for the level of European energy demand in the coming months, accelerating U.S. production and a stronger dollar -- which traded at a fresh four-month high of 92.833 against a basket of its global peers -- added to downward pressures in the futures markets.

The 1,300-feet long Ever Given, which blew off course yesterday in the norther portion of the narrow 120-mile long canal, remains largely in place despite Suez Canal Authority efforts to refloat it, creating a 156-ship backlog as vessels carrying everything from crude oil to auto parts to shoe and clothing line up to enter and exit the crucial supply chain artery.

"Admiral Osama Rabie, Chairman and Managing Director of the Suez Canal Authority has announced ... that navigation through the Suez Canal is temporarily suspended," the SCA said in a statement Thursday. "That is only until the floatation works of the large Panamanian container vessel EVER GIVEN; that ran aground at the 151 km area (Canal Marking), are complete."

Around 10% of global trade by tonnage passes through the Suez Canal, including around 5.5 million barrels of crude, and an extended blockage could add even more pressure to global supply chains which are already stressed from COVID-related shortages and demand uncertainty. 

"Shipping capacity between Europe and Asia was already squeezed during the Covid-19 crisis, with high rates of ship cancellations as the pandemic began and shortages of containers and slower handling speeds continuing to affect world trade volumes," said ING's senior economist Joanna Koings. 

"As delays extend, shipping liners may opt to re-route vessels via the Cape of Good Hope, increasing transit times by a third but avoiding the uncertainty of how long the problem will take to resolve and for backlogs to pass through the canal," she added.

WTI crude futures for May delivery, the benchmark for U.S. oil and gas prices, were marked $3.27 lower on the session at $57.91 per barrel, paring gains from as high as $68.00 per barrel earlier this month following Yemeni attacks on a key refinery in Saudi Arabia.

Brent crude contracts for May delivery, which are more tightly-aligned to global prices, fell $2.90 per barrel to $61.53 in early trading in New York, also down more than $10 from the January 2020 high of $71.38 it hit on March 8.