Oil yesterday resumed gains as investors weighed the implications of a massive container ship still stuck in the Suez Canal after a volatile few days that saw prices swing wildly around US$60 per barrel.
Futures in New York climbed 2 percent after dropping 4.3 percent in the previous session.
The blockage has led to rising shipping rates and a gridlock of vessels waiting to pass through the vital artery, with efforts to dislodge the MV Ever Given expected to take until at least Wednesday.
Photo: AFP / CNES 2020
Delays freeing the vessel is forcing shipowners and traders to consider a costly alternative route around Africa.
Oil is still set for a third weekly drop, the longest run of losses since April last year, on a bearish outlook for near-term demand. US COVID-19 cases are rising again and some European countries renewed lockdowns in a setback for the recovery.
The effects on the oil market from the blockage is likely to be muted, with crude flows from the Middle East to Europe declining due to a long-term realignment of trade.
While plenty of oil is shipped from the North Sea to Asia, it is usually carried on tankers that are too large to pass through the canal.
There are ample oil-product supplies across the region, with inventories at the major hub of Singapore holding near the five-year average.
“There’s a lot of volatility in the market right now,” said Stephen Innes, chief global market strategist at Axi. “Delays in reopening the Suez Canal can add a little bit of support, but the surging virus cases across Europe and the US, that’s going to limit the upside.”
Volatility in the oil market has climbed to the highest since November last year, and the prompt timespread for global Brent crude flipped briefly into a bearish contango on Tuesday.
It is back in a bullish backwardation structure — where near-dated contracts are more expensive than later-dated ones.
Oil has sold off in the past few weeks amid softening physical demand, a stronger dollar and the unwinding of long positions.
Despite the recent declines, prices are still up more than 20 percent this year and there is confidence in the longer term outlook as vaccination rates climb and OPEC+ keeps supply in check.
The group meets next week to decide on its production policy for May.
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