The price of oil has risen again as a result of the blockade of a ship in the Suez Canal. The ‘Ever Given‘, from the Taiwanese company Evergreen – which at 400 meters long is one of the largest ships ever built – has run aground on its way to the Port of Rotterdam, preventing the transit of dozens of freighters. This episode has put back on the table the strategic importance of an enclave that already shook the world economy ten years ago when, in the midst of the revolts against the regime of President Hosni Mubarak, there was speculation about a closure of the channel.
At that time, it was calculated that a barrel of ‘black gold’ could become at least 10% more expensive in such a situation. It is not surprising if we take into account that according to the data handled by the Energy Information Administration (EIA), almost 10% of all maritime oil trade and 8% of the world trade in liquefied natural gas currently transits the Suez Canal. It is a key step, although it does not reach the relevance of the Strait of Malacca (between the western coast of the Malay peninsula and the Indonesian island of Sumatra) far from the Strait of Hormuz, considered the most important “oil artery” in the world since more than 30% of the crude that transits through seaway around the planet.
This stretch of water of more than 163 kilometers that crosses the North of Egypt right in the narrowest area of the Sinai Peninsula, joins the Port of Said (in the Mediterranean) with Suez (Red Sea). It is a step of the utmost importance given that it connects Europe with the hydrocarbon producing nations of the Persian Gulf and with Asian manufacturers. Since its inauguration in 1869, it has meant significant cost and time savings for global trade, since goods from Asia do not have to go around the entire African continent by sea to reach their destination.
Amid the coronavirus pandemic, revenue from the Suez Canal last year reported to Egypt they were reduced by 3% to 5,610 million dollars (slightly more than 4,700 million euros), according to the figures published at the end of January by the channel authority. It is, in fact, the third source of foreign currency for the government of the country behind tourism. Nationalized in 1956, its control has been the subject of serious conflicts in which the United Kingdom, France, Israel, the United States and the former Soviet Union were involved.
The coronavirus crisis
Oil prices have been greatly affected by the economic crisis, so much so that the organization of exporting countries (OPEC) and its allies (with Russia and Mexico at the fore) decided a few days ago keep pumping cuts throughout April, with the aim of not saturating the market in the face of the collapse in demand caused by Covid-19. Now, it is unclear how long it will take to unlock the ship. “The Organization of the Petroleum Exporting Countries (OPEC) and its associated countries may choose to increase supply to counteract this supply shock. However, given the recent revisions in demand, we suspect that it will maintain the supply course,” they point out. the managers of the New York firm WisdomTree.
The Friday, March 19, oil prices were temporarily bolstered by taking into account another potential supply disruption. So it was a drone attack on a Saudi Arabian oil facility the one that made fear at first that supply problems would occur. However, this quickly gave way to concern over the aforementioned lawsuit. “We believe that with resumption of supply from the Suez Canal, this supply shock premium could dissipate quickly,” they add.
That seems to be the most widespread opinion in the markets. From the Swiss private bank Julius Baer maintain that demand should pick up for the summer, as stimuli and advances in vaccination trigger leisure and travel activities. At the same time, oil-producing countries appear willing to restrict supply for longer than necessary. “We see that oil prices will well exceed $ 70 a barrel by the middle of the year.”, they remarked.
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