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Suez Canal blockage disturbs the Global Oil and Gas Movement
Logistics & Transportation | 24 March 2021

The blockage of the Suez Canal by a giant container vessel is probably going to send ripples of disturbance through the global energy supply chain as reported by Bloomberg.

European and U.S. refiners that depend on the essential waterway for cargoes of Middle Eastern oil might be compelled to search for replacement supplies should the blockage persist, potentially boosting prices of alternative grades. Simultaneously, flows of crude from North Sea fields bound for Asia will be held up.

The critical trade route has been tossed into disturbance after the container ship ran aground on Tuesday, hindering traffic in both directions. While the vessel is only liable to stay stuck for a few days, that will be long enough to scramble some energy flows, making an additional headache for refiners, traders, and producers previously adapting to the pandemic's fallout. Local pipeline networks, in any case, should assist with easing some of the disturbance.

Ralph Leszczynski, the head of research at shipbroker Banchero Costa and Co. said that there are a lot of "alternative trades for European importers to avoid the Suez Canal."

Buyers from Europe and the U.S. will be looking to different regions, including the U.S. Gulf, North Sea, Russia, and West Africa, as indicated by the shipbrokers. With varieties including Mars Blend from the U.S. Gulf, the Urals from Russia, and surprisingly Asian and Russian Far East grades are probably going to get a lift because of any increase in demand, an analyst and one of the shipbrokers said.

The logistical challenge comes at an unstable time. Global benchmark Brent sank about 6% on Tuesday on concern near-term demand may demonstrate more vulnerability than anticipated in the midst of renewed lockdowns. On Wednesday prices advanced, with at least 100 vessels waiting to transit between the Red Sea and the Mediterranean.

The canal is a vital route, principally used to move Middle Eastern crude to Europe and the U.S., just as shipping fuel oil from the west towards the east. The canal can take completely loaded Suezmax vessels that carry around 1 million barrels and bigger Very Large Crude Carriers, as long as they transfer some cargo out of the vessel prior to transit.

Consistently, around 600,000 barrels of crude or less flow from the Middle East to Europe and the U.S. through the canal, while volumes from the Atlantic Basin to Asia total around 850,000 barrels per day, as indicated by Anoop Singh, head of East of Suez tanker research at Braemar ACM Shipbroking Pte.

Also, 400,000 barrels of naphtha go west-to-east through the waterway every day, while 300,000 barrels of middle distillates head the alternate way. Derived from crude, naphtha is utilized to make plastics and blend with gasoline, while middle distillates, additionally produced using crude, incorporate fly fuel and diesel.

Vessel charterers or proprietors who are reluctant to trust that the blockage to clear can opt to sail around South Africa, although that’s a much longer route that would take additional time and boost costs. An ocean journey from the Persian Gulf to London requires 10 additional days via the Cape of Good Hope than the canal, as per an online presentation from the World Shipping Council.

All things considered, pipeline networks will help the industry bypass the effect of the blockage, giving a route for continued crude transit. The Summed pipeline in Egypt, with the capacity limit for south-to-north flows of up to 2.8 million barrels every day, interfaces the Red Sea to the Mediterranean, as does the smaller, bi-directional Ashkelon-Eilat route across Israel.

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