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Factbox: Suez Canal blockage sends ripples through global commodity markets

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Factbox: Suez Canal blockage sends ripples through global commodity markets

London — One of the world's biggest container vessels ran aground in the Suez Canal late March 23, triggering a major scare in the global commodity markets by blocking a critical transit chokepoint.

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With the Ever Given vessel partially refloated by midday March 24, market watchers were mostly expecting the shipping route to reopen to traffic by late on March 24 or early the following day.

S&P Global Platts Analytics said the incident is unlikely to have any long-term effects on shipping rates. But it added that the backlog of vessels could take a minimum of five days to clear, with no impact on short-term freight market fundamentals. Demurrage costs, which are charged by shipowners to the consignee when transit is delayed, will be the most likely mechanism to accommodate the delays to transiting the Suez Canal, Platts Analytics said in a recent note.

The following is a round-up of the market impact and trade implications of the ongoing Suez Canal blockage.

Prices and freight rates

  • Oil prices -- which lost nearly $8/b in the week ended March 20 -- were lent some support on March 24 by the blockage to the waterway. ICE May Brent crude futures were trading at $63.90/b as of 1607 GMT, up $3.13/b from its previous settlement.
  • The spot Asia-Pacific LNG market was also up, as Suez Canal transit uncertainties and lingering buying interest for May cargoes drove bullish sentiment. The S&P Global Platts JKM for May was assessed higher by 13.9 cents/MMBtu at $6.924/MMBtu on March 24. The transit disruption on the LNG markets pushed sellers to raise their offer levels for April and May cargoes.
  • The incident was already affecting freight rates on a wide range of ships, with an immediate impact seen on containers and oil tankers. Spot freight rates for a Suezmax shipping crude from the Persian Gulf to the Mediterranean were assessed at Worldscale 23 on March 24, 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.
  • The Platts Container Rate 1 -- North Asia-to-North Continent -- was heard at $9,500/FEU on March 24, up from $1,375/FEU a year earlier, as logistical issues continue to bite.

Suez Canal: A key chokepoint for global energy flows

Trade flows

  • The Suez Canal is one of the world's most critical commodity chokepoints, connecting the Red Sea with the Mediterranean. Almost 10% of total seaborne oil trade and 8% of global LNG trade passes through the waterway, according to data from the US Energy Information Administration.
  • In February, 338 oil tankers transited the canal, according to data compiled by BIMCO and Leth Agencies. This compares with a monthly average of 364 and 385 tankers in 2020 and 2019, respectively. A total of 18,880 ships transited the canal in 2019, according to data from Suez Canal Authority.
  • There are already close to 80 ships -- including crude, product and chemical tankers, dry bulk carriers and container vessels -- waiting to transit the canal from both sides, according to data from Platts tanker tracking service cFlow. Meanwhile, in the Great Bitter Lake region -- which is just north of where the container ship grounded -- there are already 34 ships waiting to pass through.
  • Some of the oil tankers are carrying crude, such as Saudi Arabia's Arab Light and Arab Extra Light, Iraq's Basrah Light and UAE's Murban, and also refined products including jet fuel and gasoil, according to cFlow.
  • Several container liners are looking to re-route cargoes via the Cape of Good Hope in an attempt to keep cargoes moving, although this will cause additional costs in the market. There are already significant delays at European container ports owing to ongoing firm demand and equipment shortages around the world, which have pushed freight rates to all-time highs.

Suez Canal yet to recover from coronavirus pandemic slump

Infrastructure

  • Key crude producers like Saudi Arabia, Russia, Iraq, the UAE, Azerbaijan, Kazakhstan, Norway, Kuwait, Libya and Algeria rely on Suez Canal to export their crude. Flows of petroleum products have also risen in recent years. Europe sends a sizable amount of naphtha to Asia every week, while large shipments of jet fuel and diesel come from Asia and the Middle East into Europe.
  • 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.
  • Fully laden VLCC oil tankers cannot pass through the Suez Canal, due to its width. However, Suezmaxes, Aframaxes, Medium Range 1 and Medium Range 2, and Handysize tankers regularly navigate the canal.
  • Most exports of petroleum and natural gas from the Persian Gulf that transit the Suez Canal, or the SUMED pipeline, also pass through both the Bab-el-Mandeb and the Strait of Hormuz. Some 5.5 million b/d of crude and oil products transited the Suez Canal, or the SUMED pipeline in 2016, according to the EIA.
  • The Ever Given ran aground at about 0740 hours local time (0840 GMT) on March 23 after it suffered a blackout while transiting in a northerly direction. The stranded vessel has a capacity of 20,000 twenty-foot equivalent units and is sailing under the Panama flag. The ship continues to remain anchored at the southern end of the Suez Canal, according to cFlow. The Ever Given loaded from the Chinese port of Yantian on March 8 and was on its way to Rotterdam in the Netherlands before the incident. Representatives at Taiwan-based Evergreen Maritime -- the ship's operator -- were not immediately available for comment.