Exclusive Webinar :Gain complete knowledge about how you can invest in global markets during an insightful webinar on April 16 at 11 am. Register Now!
you are here: HomeNewsWorld

Suez Canal blockage sets shipping rates racing, oil and gas tankers diverted away

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

March 26, 2021 / 11:31 AM IST
Source: Reuters

Source: Reuters

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-metres long Ever Given has been stuck in the canal since Tuesday and efforts are under way to free the vessel although the process may take weeks amid bad weather.

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.

Also Read: Explained | How a ship running aground in Egypt’s Suez Canal could hurt India

Also Read: Crew of Ever Given, cargo ship blocking the Suez Canal, are all Indian

Close

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

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

"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.

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.

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% increase, according to Refinitiv.

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.

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 favoured," data intelligence firm Kpler said.

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.

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.
Reuters
first published: Mar 26, 2021 11:15 am

stay updated

Get Daily News on your Browser
Sections