Suez Canal blocked: Oil prices rebound on fears vessel may take weeks to free

The Asian markets also bounced back from a three-month low on Friday

Stranded container ship Ever Given, one of the world's largest container ships, is seen after it ran aground, in Suez Canal, Egypt March 26, 2021. REUTERS/Mohamed Abd El Ghany
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Oil prices bounced back on Friday from a plunge a day earlier on concerns that a large container ship that ran aground in the Suez Canal may block the vital shipping lane for weeks, squeezing supply.

Brent crude rose 0.7 per cent to reach $62.4 a barrel, after dropping 3.8 per cent on Thursday.

US West Texas Intermediate crude was up 0.8 per cent at $59.1 a barrel, having tumbled 4.3 per cent a day earlier.

Both benchmarks were on track for a weekly loss of more than 3 per cent, following a more than 6 per cent decline last week.

The trapped container ship is blocking traffic in the Suez Canal, one of the world's busiest shipping channels for oil and refined fuels, grain and other trade between Asia and Europe.

Officials stopped all ships entering the canal on Thursday, and a salvage company said the vessel may take weeks to free.

"Expectations that the blockage of the Suez Canal may last for weeks raised fears of supply tightness in oil markets," Nissan Securities researcher Yasushi Osada said.

"But lingering worries that a fresh wave of lockdowns in Europe and elsewhere may slow a recovery of global fuel demand are expected to limit price gains," he said.

Countries in Europe are renewing restrictions to curb the spread of Covid-19, which will likely reduce fuel demand from the region. Germany, Europe's largest economy, has seen its biggest increase in coronavirus cases since January.

FILE PHOTO: Pump jacks operate in front of a drilling rig in an oil field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford/File Photo
Pump jacks operate in front of a drilling rig in an oil field in Texas. Reuters

Meanwhile, Asian shares bounced back from a three-month low on Friday thanks to a late-day rally on Wall Street as optimism about the global economic recovery was overshadowed by rising tensions between the West and China.

MSCI's ex-Japan Asia index rose 0.4 per cent after hitting a near three-month low on Thursday, while the Shanghai Composite Index gained 0.8 per cent, snapping a three-day losing streak.

"Recent falls in Chinese shares have been worrying but there's no change in the fact the Chinese economy is recovering," said Yasutada Suzuki, head of emerging market investment at Sumitomo Mitsui Bank.

"All the sanctions so far have been largely symbolic and should have little economic impact. But the Sino-US confrontation is affecting market sentiment. It could take some time for them to come to any compromise.”

On Thursday, Chinese shares fell near to a three-month low hit earlier in the month.

The European Union joined Washington's allies this week in imposing sanctions on officials in China's Xinjiang region over allegations of human rights abuses, prompting retaliatory sanctions from Beijing.

Japan's Nikkei rose 0.9 per cent after Wall Street shares staged a rally, driven by cheap, cyclical stocks that have been battered by the pandemic.