Oil Soars As Suez Canal Blockage Continues, Megaship "Likely Damaged", Traffic Can't Pass

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by Tyler Durden
Wednesday, Mar 24, 2021 - 01:23 PM

Update (1449 ET): The technical manager of the mega containership stranded in the Suez Canal for more than a day said dredging efforts around the vessel would continue. 

Bernhard Schulte Shipmanagement, the technical manager of Ever Given, said there were attempts to refloat the ship on Wednesday after the vessel plowed into the side of the canal after adverse weather conditions on Tuesday. 

Inchcape Shipping Services reports efforts to refloat the vessel have been suspended till Thursday.  

The incident in the Suez has ground the world's most crucial shipping lane to a complete halt. Ever Given is likely damaged and will need to be towed out of the channel, but before that happens, it needs to be refloated. 

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Update (1322 ET): In a rollercoaster ride, crude futures are soaring this afternoon, erasing much of yesterday's losses after the massive containership is likely damaged and is still blocking traffic in the Suez Canal Wednesday afternoon.

NYMEX WTI crude oil futures are up 6% on the session at the $61 handle, erasing much of yesterday's losses as the market focuses on Suez developments. At the moment, crude builds and virus troubles in Europe are on the backburner. 

"The vessel is likely damaged and will have to be towed," said Captain Farhad Patel, a director at Dubai-based Sharaf Shipping Agency, which regularly handles transits through the waterway. "Nothing is confirmed, as of now, when the traffic in the Suez Canal can resume. Space restrictions caused by the grounded vessel may not allow traffic to pass."

According to Refinitiv shipping data, the 120 miles long Suez Canal appears closed as multiple parking lots of ships continue to build. It appears the global supply chain is starting to freeze in one of the world's most vital shipping lanes. 

To avoid the chaos in the canal, shipping companies are booking tankers with options to avoid the area, according to Halvor Ellefsen, a tanker broker at Fearnleys.

The options are "just in case, but think most believe it's going to be sorted soon enough."

Most of the bookings with options to bypass Suez are still on subjects, meaning they may yet not get concluded: Ellefsen.

The main alternative for bypassing the Suez Canal is to navigate around the bottom of South Africa. 

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Update (0739 ET): Bloomberg reports the massive containership blocking the Suez Canal has been dislodged from the bank of the canal and moved to the side, potentially easing disruption to one of the world's most vital shipping lanes. 

Ahmed Mekawy, the deputy manager for the Suez Canal for Gulf Agency Company, expects the canal could resume today or tomorrow. 

Mekawy said the containership is "expected to be re-floated shortly, then the Suez Canal Authority will work on resuming transit for all waiting ships." 

The Suez Canal Authority has yet to comment on whether the ship has been moved.

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Update (0706 ET): The Gulf Agency Company in Egypt reports Suez Canal traffic could "resume soon." 

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Update (0704 ET): The blockage of the Suez Canal by a massive container ship called the Ever Given, owned by Evergreen Marine Corp., could last for at least another day and send ripples of disruption through global supply chain networks, according to Bloomberg

Eight tug boats have been working through Wednesday to free the 400m long container ship that ran aground in the Suez Canal on Tuesday. The angle at which the Ever Given ran aground has completely blocked the canal. The canal is a chokepoint for the global oil trade as dozens of vessels are moored outside both entrances waiting for the container ship to get unstuck.

"The salvage operation with tugs is underway, and hopefully, the vessel will be freed soon, but it could last days," said Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co.

An official with the Gulf Agency Company in Egypt told Bloomberg no progress had been made in clearing the canal. The mishap's cause is due to the vessel's loss of steering amid high winds and a dust storm, the Suez Canal Authority said in a statement.

Taiwan-based Evergreen Line told Bloomberg in an emailed statement that the vessel deviated "from its course due to suspected sudden strong wind." 

The 120 miles long Suez Canal is the most trafficked waterway globally, mainly by chemical tanker ships hauling crude and other crude products from the Middle East to Europe and North America. About 12% of global trade and 8% of liquefied natgas traverse the canal and nearly one million oil barrels each day. 

Grounded Ever Given Chokes World's Most Vital Shipping Lane

The canal's blockage has led to a gridlock of vessels on either side of the canal's entrances.  

After Tuesday's steep selloff, crude futures rebounded on Wednesday on the Suez Canal developments. Brent futures are up 2.48% to $62.30, and WTI trades around 59 handle, up more than 2%. 

"It's all about the Suez, as well as people trying to get into oil again after the selloff," said Bjarne Schieldrop, chief commodities analyst at SEB AB. It appears lockdowns, mutations, and vaccination rollout delays are on the backburner for now. 

While the vessel is expected to be unstuck in the near term, energy flows and other types of cargo traversing the canal may experience prolonged shipping times. This could be an additional headache for refiners, traders, and producers already dealing with supply chain disruptions due to the virus pandemic. 

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In what appears to be a freak accident, a Panama-flagged container ship called the Ever Given, owned by Evergreen Marine Corp., has run aground inside the Suez Canal, the critical artificially made shipping lane connecting the Red Sea with the Mediterranean.

Known as a critical chokepoint for the global oil trade, the Suez has become blocked in both directions thanks to the peculiar angle of what's been described as a "megaship".

The ship was traveling from a port in Egypt to Rotterdam, in the Netherlands, one of the world's most active ports. It was due to arrive March 31.

Ships are already stuck in the water. In addition to weighing almost 200K tonnes, here's more info on the ship courtesy of Reuters.

The traffic jam has reportedly spread from the canal, back into the Red Sea and the Mediterannean.

At a time when shipping companies are already struggling to recover from the strains of the COVID pandemic, which required them to rejigger global shipping routes in fundamental ways. It's also presents risks to the inflation outlook, as the lingering containership shortage mentioned above is slowing down the pace of global trade at a time when Americans' demand for products foreign-made consumer products is surging.

It could take days for a major Dutch salvage company to ride to the rescue.

In the meantime, looks like we're in the midst of another Suez crisis...albeit one that lacks a political dimension.