Suez Canal blockage raising the oil prices
Though still headed for a third consecutive weekly loss, they rebounded on Friday on concerns that the large container ship that ran aground in the Suez Canal may block the vital shipping route for weeks, squeezing supply. Lingering worries that a fresh wave of lockdowns in Europe and elsewhere may slow the recovery of global fuel demand are also expected to limit price gains.
What is the price of oil today?
On Thursday, Brent Crude advanced $1.16, or 1.9%, to trade at $63.12 per barrel, after dropping 3.8% on Thursday. Prices fell as a new round of coronavirus restrictions in Europe revived worries about demand, even as tugboats struggled to move a stranded container ship blocking crude oil carriers in the Suez Canal.
On Friday, the U.S. benchmark, West Texas Intermediate (WTI) crude advanced $1.25, or 2.1%, to trade at $59.81 per barrel, having tumbled 4.3% a day earlier.
Still, both benchmarks were on track for a weekly loss of more than 3%, following a more than 6% decline last week.
Why is oil price surging?
Prices are surging following the trapped container ship, which is blocking traffic in the Suez Canal, one of the world’s busiest shipping channels for oil and refined fuels, and other commodities between Asia and Europe.
Officials have stopped all ships entering the canal on Thursday, in an effort to free the ship that has debunked. The technical manager of the ship said another effort to re-float the vessel will be undertaken later in the day after an earlier attempt failed. But the salvage company has said the vessel may take weeks to free.
The fears that the blockage may last for weeks have raised fears of supply tightness in oil markets. Lingering worries that a fresh wave of lockdowns in Europe and elsewhere may slow recovery of global fuel demand are also expected to limit price gains.
The impact of the Suez Canal blockade on oil prices is also limited as the destination of most oil tankers is Europe, but European demand is currently weak due to a new round of lockdowns.
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. The oil market was also under pressure as producers had difficulty selling to Asia, especially China. Asian buyers instead took cheaper oil from storage while refinery maintenance has reduced demand.
A strong dollar also weighed on oil prices. The dollar hit a new four-month high against the euro as the U.S. pandemic response continued to outpace Europe’s.
OIL Price forecast
Given the persistent demand worries and falling prices, expectations are growing that the Organization of Petroleum Exporting Countries and allies, together called OPEC+, will rollover their current supply curbs into May at a meeting scheduled for April 1, further affecting prices.
In early March, oil futures jumped, posting their highest finish since 2019 after OPEC and OPEC+ allies decided to keep production unchanged through April. Saudi Arabia committed to extending its one million barrels per day voluntary production cut into April while Russia and Kazakhstan will be allowed to increase production by 130,000 and 20,000 barrels per day.
Crude futures have soared to pre-virus levels in recent weeks, driven higher by substantial OPEC+ production cuts and the mass rollout of Covid-19 vaccines in many high-income countries.
Analysts forecast that global demand will increase by 6.3 million barrels per day year on year in 2021. Brent crude prices will rise toward $70 to $75 during April, assuming that OPEC+ does not raise output that month, except for Russia and Kazakhstan.