Advertisement

Vessel blocking Suez Canal causes oil tanker shipping rates to nearly double

Click to play video: 'Massive cargo ship stuck in Suez Canal continues to harm global shipping' Massive cargo ship stuck in Suez Canal continues to harm global shipping
WATCH: Massive cargo ship stuck in Suez Canal continues to harm global shipping – Mar 25, 2021

Reeling from the blockage in the Suez Canal, shipping rates for oil product tankers have nearly doubled this week, and several vessels were diverted away from the vital waterway as a giant container ship remained wedged between both banks.

The 400 metre long Ever Given has been stuck in the canal since Tuesday and efforts are underway to free the vessel although the process may take weeks amid bad weather.

Read more: Hopes and memes rest on ‘tiny’ excavator digging out Suez Canal ship

Shoei Kisen, its Japanese owner, denied a news report that it aimed to dislodge it by Saturday night, saying refloating efforts were ongoing. Separately, the Suez Canal Authority said it welcomed a U.S. offer to help.

The suspension of traffic through the narrow channel linking Europe and Asia has deepened problems for shipping lines that were already facing disruption and delays in supplying retail goods to consumers.

Story continues below advertisement

Analysts expect a larger upward impact on smaller tankers and oil products, like naphtha and fuel oil exports from Europe to Asia, if the canal remained shut for weeks.

“Around 20 per cent of Asia’s naphtha is supplied by the Mediterranean and Black Sea via the Suez Canal,” said Sri Paravaikkarasu, director for Asia oil at FGE, adding that re-routing ships around the Cape of Good Hope could pile about two more weeks to the voyage and more than 800 tonnes of fuel consumption for Suezmax tankers.

Click to play video: 'Huge container ship gets stuck in Suez Canal, blocking all traffic' Huge container ship gets stuck in Suez Canal, blocking all traffic
Huge container ship gets stuck in Suez Canal, blocking all traffic – Mar 24, 2021

Fuel is a ship’s single biggest cost, representing up to 60 per cent of operating expenses.

By contrast, an already weak Asian gas, oil, or diesel, market is also being made worse by the blockage since Asia exports the fuel to markets in the west, like Europe, of which more than 60 per cent flowed via the chocked Canal in 2020, according to FGE.

Story continues below advertisement

More than 30 oil tankers have been waiting at either side of the canal to pass through since Tuesday, shipping data on Refinitiv showed.

About two dozen ships could be sighted from the shores of Port Said on Friday morning, according to a Reuters witness, as the backlog built up along the Egyptian coast.

“Aframax and Suezmax rates in the Mediterranean have also reacted first as the market starts to price in fewer vessels being available in the region,” shipbroker Braemar ACM Shipbroking said.

Read more: ‘Complex’ work to free massive ship stuck in Suez Canal enters 3rd day

At least four Long-Range 2 tankers that might have been headed towards Suez from the Atlantic basin are now likely to be evaluating a passage around the Cape of Good Hope, Braemar ACM said. Each LR-2 tanker can carry around 75,000 tonnes of oil.

Rising demand for Atlantic Basin crude within Europe will also increase the use of these smaller tankers and support freight rates, it added.

Click to play video: 'Biden says U.S. has capacity, equipment to help with vessel stuck in Suez Canal' Biden says U.S. has capacity, equipment to help with vessel stuck in Suez Canal
Biden says U.S. has capacity, equipment to help with vessel stuck in Suez Canal – Mar 26, 2021

The cost of shipping clean products, such as gasoline and diesel, from the Russian port of Tuapse on the Black Sea to southern France increased from $1.49 per barrel on March 22 to $2.58 a barrel on March 25, a 73 per cent increase, according to Refinitiv.

Story continues below advertisement

The shipping index benchmark for LR2 vessels from the Middle East to Japan, also known as TC1, had climbed to 137.5 worldscale points as of early Friday, compared with 100 worldscale points last week, said Anoop Jayaraj, clean tanker broker at Fearnleys Singapore.

This satellite image from Planet Labs Inc. shows the cargo ship MV Ever Given stuck in the Suez Canal near Suez, Egypt, Tuesday, March 23, 2021. Planet Labs Inc. via AP

Similarly, the index for freight rates for Long-Range 1 (LR1) vessels on the same route, known as TC5, stood at 130 worldscale points on Friday, up from 125 at the end of last week. Worldscale is an industry tool used to calculate freight rates.

The impact of the shipping delays on energy markets is likely to be mitigated by demand for crude oil and liquefied natural gas (LNG) being in the low season, analysts said.

“The seasonal nature of this flow means that we are unlikely to see pressure put on LNG shippers moving cargoes to the east as the longer and cheaper Cape routes are favored,” data intelligence firm Kpler said.

Story continues below advertisement

Several LNG tankers have been diverted, one Singapore-based shipbroker said, adding that sentiment for LNG tanker rates are more positive following the incident.

He added that some European buyers anticipating delays of LNG from Qatar may be considering other options such as buying in the spot market. Still, with demand for LNG being in the low season, the impact may be minimal, analysts said.

In this photo released by the Suez Canal Authority, a boat navigates in front of a cargo ship, Ever Given, Wednesday, March 24, 2021, after it become wedged across Egypt’s Suez Canal and blocked all traffic in the vital waterway. (Suez Canal Authority via AP)

If the blockage lasts for two weeks, about one million tonnes of LNG could be delayed for delivery to Europe, Rystad Energy’s head of gas and power markets Carlos Torres Diaz said in a note on Thursday.

This could double to more than two million tonnes of delayed cargo deliveries in a worst-case scenario of the Canal being blocked for four weeks, he added.

Meanwhile, oil traders told Reuters they are adopting a wait-and-see approach to see if a higher tide due on Sunday would help.

Story continues below advertisement

“We have some cargoes stuck… Going around the Cape of Good Hope will be worse,” a trader with a western firm said.

Sponsored content