Oil prices rose during early trading on Wednesday after a large container vessel blocked the Suez Canal, a key passageway for trade in crude and commodities.
Brent, the international benchmark under which two thirds of the world's crude is traded, was up 2.11 per cent to trade at $62.07 per barrel at 3.38pm UAE time. West Texas Intermediate, which tracks US crude grades was up 2.16 per cent at $59.01 per barrel.
The potential disruption to crude, of which 1 million barrels per day are transported through the Suez Canal, spiked oil contracts by 1 per cent today, said Jeffrey Halley, senior market analyst, Asia Pacific at Oanda.
The 193 kilometre-long canal, which lies between the African continent and the Arabian Peninsula accounts for 12 per cent of global trade.
The Suez Canal and the Sumed Pipeline are critical chokepoints for Middle Eastern crude, which accounts for nearly 30 per cent of all supply. In 2019, the canal and the pipeline accounted for nearly 9 per cent of all seaborne-traded crude and petroleum products, according to the US Energy Information Administration.
With the vessel Ever Given running aground at the canal, oil flowing both ways across the canal will remain interrupted for a couple of days.
Saudi Arabia, the world's largest crude exporter, ships 500,000 bpd of crude to the United States alone, of which a significant portion travels through the canal.
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The stranded container ship Ever Given, one of the world's largest container ships, after it ran aground in Suez Canal, Egypt. Reuters -
The stranded container ship Ever Given after it ran aground in Suez Canal. Reuters -
A tugboat by the Panama-flagged MV Ever Given container ship. AFP -
Tugboats by the Panama-flagged MV Ever Given. AFP -
Tugboats by the Panama-flagged MV Ever Given. AFP -
The Ever Given container ship which ran aground in the Suez Canal, Egypt. EPA -
Ever Given container ship is pictured in Suez Canal in this Maxar Technologies satellite image. Reuters -
A view of the earth moving equipment excavating sand near the bow of the Ever Given container ship in Suez Canal in this Maxar Technologies satellite image. Reuters -
A view of the dredging operations which continue near the Ever Given container ship in Suez Canal in this Maxar Technologies satellite image. Reuters -
Egyptian officials oversee the operation to free Taiwan-owned cargo MV Ever Given after it become stuck in the Suez Canal. AFP -
Egyptian officials oversee the operation to free Taiwan-owned cargo MV Ever Given after it become stuck in the Suez Canal. AFP -
Egyptian tug boats try to free the ship. AFP -
Egyptian tug boats try to free the ship. AFP -
Egyptian tug boats try to free the ship. AFP -
The ship is shown lodged sideways. AFP -
All movement in the canal comes to a standstill. AFP -
A satellite image of the Ever Given. AP -
A satellite image of the Ever Given. AP -
Stranded container ship Ever Given, one of the world's largest container ships, is seen after it ran aground, in Suez Canal, Egypt in this still image taken from a video. Reuters -
Egypt's Suez Canal authorities are redirecting shipping traffic on Wednesday after a 200,000-tonne container ship 'MV Ever Given' ran aground and blocked the canal's main channel. Reuters -
Recovery teams are surveying the 'MV Ever Given', which ran aground in the Suez Canal on Tuesday as it headed for the Mediterranean after leaving the Red Sea. Its destination is Rotterdam in the Netherlands. Reuters -
Lt Gen Osama Rabei, head of the Suez Canal Authority, second right, assesses the 'MV Ever Given' from the bridge of a cutter. AP Photo -
This satellite image from Planet Labs shows the cargo ship 'MV Ever Given', stuck in the Suez Canal. AP Photo -
This satellite image from Planet Labs shows the cargo ship 'MV Ever Given', grounded in the Suez Canal since Tuesday. AP
A 2018 blockade to Bab el Mandeb, a chokepoint that lies further to the south of the Arabian Peninsula near Yemeni territorial waters, also caused concerns about the security of oil supply.
The disruption to Suez traffic has lifted prices, which had witnessed a sell-off last week over renewed concerns of Covid-19 infections.
The sell-off continued on Tuesday, with both Brent and WTI collapsing by a further 6 per cent. Falling crude demand in Europe, where vaccination deployment has suffered setbacks, weighed on sentiment.
The blockage has provided a "reprieve" to oil prices, but this is only likely to be temporary, Mr Halley said.
"With speculative markets still long, it seems, oil is likely to be a sell ... until Covid-19 and economic recovery sentiment swings back into the black," said Mr Halley.
A slow vaccine rollout means a recovery in oil demand is likely to be delayed, with an expected 5.5 million barrels per day increase only likely if there is a strong pick-up in the second half of the year, Saxo Bank's head of commodity strategy Ole Hansen said in a note.
However, "the long overdue and much needed" recent correction in prices is now close to having exhausted itself, Mr Hansen said.
