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Oil trade braces for long delays as Suez Canal closure likely to last days


Around 40 oil, LNG tankers waiting to transit the key waterway

Backlog could take a week or more to clear: sources

Traders start to change loading/delivery date of oil cargoes

  • Author
  • Eklavya Gupte    Charlotte Bucchioni    Robert Perkins    Harry Weber
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  • Robert Perkins
  • Commodity
  • LNG Oil Metals Shipping

London — The reopening of the Suez Canal is now likely to take several days, market watchers told S&P Global Platts March 25, as around 40 oil and LNG tankers have piled up to transit one of the world's most critical commodity chokepoints.

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The container ship Ever Given remains stuck in the key waterway, more than 48 hours after it first ran aground. Efforts to refloat the container ship are continuing with many tugboats and dredgers assisting the vessel, shipping and industry sources said.

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By 1743 GMT, there were at least 21 crude tankers -- estimated to be carrying around 18 million barrels -- and 14 product tankers -- holding around 500,000 mt -- waiting to navigate through the canal, according to data from cFlow, Platts' trade flow software.

The oil tankers are carrying crudes such as Saudi Arabia's Arab Light and Arab Extra Light, Libya's Es Sider, Mexico's Maya, Iraq's Basrah Light and UAE's Murban, and also refined products like naphtha, jet fuel, gasoil and fuel oil, according to Platts cFlow.

Royal Boskalis Westminster, a Dutch dredging and heavy lift company, has been hired to help refloat the giant container.

The chief executive of Boskalis Peter Berdowski said the salvage operation "could take days to weeks" comparing the giant ship to a "heavy whale".

"The more [grounded] the ship is, the longer an operation will take. It can take days to weeks," Berdowski said on a Dutch television program called Nieuwsuur. "Consider bringing in all the equipment we need, that's not around the corner."

Bernhard Schulte Shipmanagement, or BSM, which is the technical manager of the Ever Given, said in a statement on March 25 that it "intensified its efforts" to refloat the vessel but progress had been slow.

Loading/discharge delays

Trade for crude oil, refined products, LNG, steel has already been hit, with some discharge and loading delays already caused and these could worsen if the blockage persists longer.

Before the COVID-19 pandemic hit trade flows, the canal transported some 5 million b/d of crude and oil products and 31 million mt of LNG in 2019, according to Platts Analytics and data from the Suez Canal Authority.

Some sources said that if the Suez Canal reopens early next week, it could take somewhere between 7 and 14 days to clear the backlog.

Platts Analytics said a longer protracted closure could "lead to a spike in freight rates, impair refining margins and inject further volatility" into oil and gas prices.

Some oil traders are looking to move the loading date of some crude cargoes, especially those loading in the Mediterranean and Black Sea, sources said.

Crude from Libya, Azerbaijan, Kazakhstan, Algeria are most likely to be affected the most, as a sizable chunk of this oil heads east on Suezmaxes and Aframaxes, which can pass through the Suez Canal.

"There will most likely be some cargoes that will need to be withdrawn and resold to other parties not looking to go East," said a crude oil charterer active in the Mediterranean crude market.

Ever Given | Suez Canal ship accident delays crude, products arbitrage flows: sources

Photo: Platts cFlow

Freight rates

The ever-growing queue of vessels waiting to transit the canal is, however, causing owners and charterers to consider their options, and this could impact freight rates.

"Owners and charterers face some tough options: wait until the Suez Canal reopens, commit to transit the longer route around the Cape of Good Hope or cancel their fixtures or cargoes," Platts Analytics said in a recent note.

"For vessels already in the backlog or about to load a cargo, the Suez Canal route is still the preferred option... These Suez Canal delays could see rates in April and May remain higher than pre-incident freight levels."

The incident has already had some impact on freight rates on tankers.

Spot freight rates for a Suezmax shipping crude from the Persian Gulf to the Mediterranean were assessed at Worldscale 23 on March 25, the highest level since Feb. 2, according to Platts data. Freight rates in the Mediterranean and Black Sea were also strengthening, with ships stuck in the long traffic jam tightening tonnage, shipping sources said.

Owners were now refraining from offering into cargoes, hoping to see rates further strengthen. On the Hound Point-to-East VLCC route, tanker owners were reported offering around $5 million per voyage, up $825,000 from the most recent deals. Modern tonnage availability on VLCCs was limited, with ships having to ballast from East and go around the Cape of Good Hope.


The chokepoint is also critical for LNG. A hefty amount of Qatari LNG destined for European markets passes through the waterway. But Qatar has started to divert more cargoes to Asia in recent years.

In February, 86 LNG carriers transited the canal, according to Platts Analytics. This compares with a monthly average of 56 and 62 carriers in 2020 and 2019, respectively.

Octavio Simoes, CEO of US LNG export developer Tellurian, said that the Suez closure could cause global LNG shippers to consider alternative routes to avoid such problems.

"Out of the US, LNG exports on the Gulf region going to India and Thailand and Pakistan or Bangladesh or even Vietnam, we go around the Cape of Good Hope, an alternative to go to the Suez Canal," Simoes said. "It doesn't really change the timing or the cost."

A strategic route for crude oil, petroleum products, and LNG shipments, the 120-mile-long canal connects the Red Sea with the Mediterranean and sees more than 18,000 ships transit each year, according to the Suez Canal Authority. Almost 10% of total seaborne oil trade and 8% of global LNG trade passes through the Suez Canal, according to the US Energy Information Administration.

Earlier on March 25, Japan's Shoei Kisen Kaisha, owner of the Ever Given, said it is currently using a power shovel or an industrial dredger to try to move the vessel. The Ever Given has a capacity of 20,000 twenty-foot equivalent units and is sailing under a Panama flag. The vessel loaded from the Chinese port of Yantian on March 8 and was on its way to Rotterdam in the Netherlands before the incident on March 23.

The Ever Given grounded on March 23 "due to strong winds as the vessel, with two canal pilots onboard, was transiting northbound through the canal," according to BSM.