25 March 2021

Crude Oil Jumps After Ship Blocks the Suez Canal

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News shaping
the markets today

     

What’s happening: Crude oil surged sharply on Wednesday after a container ship sealed off passage in the Suez Canal.

What happened: Crude oil prices spiked on Wednesday after recording sharp losses during the previous trading session due to concerns around the resurgence of covid-19 cases and renewed lockdown restrictions.

Amid possible supply disruptions caused by the blockage at the Suez Canal, investors shrugged off the rise in US inventories reported by the EIA.

Why it matters: On Tuesday, both WTI (West Texas Intermediate) and Brent crude prices had tumbled into correction zone, a term used for a decline of 10% or more in prices from their latest peak. Oil prices had come under pressure with several nations in Europe announcing the reimposition of lockdowns, stoking concerns over a slowdown in the global economic recovery and a resultant fall in energy demand.

Investor attention was grabbed by news on Wednesday of a Panama-flagged container ship running aground, causing traffic to come to a standstill at the Suez Canal, which is one of the world's most heavily trafficked water passage.

“The Suez Canal blockage comes at a particularly unhelpful time,” JOC Group editor Greg Knowler said, while adding, “Even a two-day delay would further add to the supply chain disruption slowing the delivery of cargo to businesses across the U.K. and Europe.”

The failure of tugs to dislodge Ever Given, a ship operated by Taiwan's Evergreen Marine Corp, fuelled fears of prolonged delays in the movement of goods and oil. The halting of passage at the canal, through which 12% of global trade is transported, is costing around $400 million an hour, according to Lloyd’s List.

Amid this chaos, oil prices did not respond to the EIA report of a rise in US crude inventories of 1.9 million barrels in the week ended March 19. This marked the fifth consecutive week of a rise in crude stockpiles and came in higher than the consensus estimate of 1.7 million barrels. Earlier on Tuesday, the API had also reported an increase of 2.9 million barrels in crude stockpiles.

WTI crude for May delivery surged 5.9% to close at $61.18 per barrel on the NYMEX (New York Mercantile Exchange) on Wednesday, after shedding over 6% in the previous trading session. May Brent crude climbed around 6% to settle at $64.41 per barrel on ICE Futures Europe.

Although gasoline supply also grew by 200,000 barrels last week, the rise was significantly lower than market expectations of 900,000 barrels. April gasoline climbed 4.9% to settle at $1.99 per gallon on Wednesday. April natural gas rose 0.4% to close at $2.52 per million British thermal units.

What to watch: Markets will closely monitor developments around the dislodging of Ever Given and the opening of the Suez Canal.

The EIA’s report on natural gas inventories will also remain in focus. Working gas held in storage facilities is expected to decline by 25 billion cubic feet, following a 11 billion drop in the week ending March 12.

The Markets Today

     

European stocks will be in focus today, ahead of several economic reports scheduled for release.

Context: European equities traded mixed on Wednesday, with investors remaining concerned about the rise in covid-19 cases.

Details: Cautious trading in Europe followed a similar trend in the Asia-Pacific region, where markets remained subdued amid fears of a resurgence of infections causing another major disruption in economic activity.

Several nations around the world are reporting a rise in fresh covid-19 cases, with new variants of the virus spreading rapidly. Europe is among the worst affected, with Germany and France being forced to extend lockdown restrictions.

The IHS Markit’s composite PMI for Europe climbed to 52.5 in March, from February’s reading of 48.0. Although this indicated a rise in the eurozone’s business activity, focus remained on prospects of renewed restrictions. The UK’s composite PMI also jumped to 56.6 in March, from 49.6 in February, exceeding market expectations.

The pan-European Stoxx 600 rose 0.02% on Wednesday, with mining and construction shares leading the gains. Autos shares bucked the trend, moving lower by around 1.5%. London’s FTSE 100 and French 40 rose 0.2% and 0.03%, respectively, while the German DAX 30 lost 0.35%.

What to watch: Markets await economic data on loans to households, loans to non-financial corporations and M3 money supply from the eurozone. The European Council Meeting will also remain in focus.

Rising covid-19 cases continue to be a major concern for investors, with total global infections surging past 124.6 million.

Other Markets: US indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.01%, 0.55% and 1.68%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s GfK consumer climate indicator, France’s manufacturing climate indicator, business climate indicator, initial jobless claims and unemployed persons, Spain’s producer prices, UK’s car production and CBI distributive trades, South Africa’s producer prices, SACCI business confidence index and South African Reserve Bank interest rate decision, Turkey’s foreign exchange reserves, Mexico’s economic activity index, retail sales and Mexico's central bank interest rate decision, Argentina’s consumer confidence, retail sales and unemployment rate as well as the US initial jobless claims, GDP growth rate, Kansas City Fed's manufacturing production index.

 

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