Futures Movers: Oil gains as shipping remains at a halt in the Suez Canal, but U.S. prices log a weekly loss

United States

Crude-oil futures finished higher Friday as a 220,000 ton cargo ship blocked the Suez Canal for a fourth straight day and efforts to dislodge one of the world’s largest container vessels from the critical trade waterway proved unsuccessful.

The narrow canal is a crucial chokepoint for Persian Gulf oil and uncertainty about how long it will take to remove the tanker have complicated the near-term outlook for energy assets.

Read: Why the blockage of the Suez Canal matters for oil prices

On top of that, energy traders are struggling with extended business lockdown in parts of Europe to combat the coronavirus pandemic, implying less demand for energy products.

Those two events have been whipsawing crude prices, which have been vulnerable to headline news after both the U.S. and international benchmark oil contracts fell into correction earlier this week, defined as a drop of at least 10% from a recent peak.

“The fundamental backdrop of the oil markets has deteriorated this week as consumer demand estimates are revised lower, but the near-term uncertainties surrounding the Suez debacle are keeping prices from materially declining,” said Tyler Richey, co-editor at Sevens Report Research. 

West Texas Intermediate crude for May delivery CL.1, +3.98% CLK21, +3.98%, the U.S. benchmark, added $ 2.41, or 4.1%, to settle at $ 60.97 a barrel on the New York Mercantile. Prices fell 4.3% on Thursday, giving up much of the 5.9% rise seen on Wednesday.

Read: Energy sector leads year-to-date rise for commodities; lean hog, steel prices soar

May Brent crude  BRNK21, -0.06% BRN00, -0.02% added $ 2.62, or 4.2%, to $ 64.57 a barrel on ICE Futures Europe, following a 3.8% skid a day ago. The global benchmark saw a 6% rise on Wednesday.

Check out: Concerns over the Suez Canal accident tilt toward natural gas

It’s unclear how long the Suez Canal blockage will remain but some experts are predicting weeks rather than days. “This now looks like it will take a few weeks,” Anoop Singh, the Singapore-based head of tanker analysis at shipping broker Braemar ACM, was quoted by the Wall Street Journal as saying.

An estimated 10% of total seaborne oil trade passes through the Suez Canal which connects the Red Sea with the Mediterranean Sea.

Reuters reported that the owner of the MV Ever Given container ship, Shoei Kisen, denied speculation that it could be removed as early as Saturday night, which would have set the stage for downdraft in energy prices.

The blockage has disrupted the flow of oil through the canal, but for the week WTI crude lost about 0.8%, while Brent crude edged up by 4 cents, based on the front-month contracts, according to Dow Jones Market Data.

“The market impact of the logistical shipping nightmare should be contained to regional physical markets,” because global oil stockpiles remain “historically elevated,” Richey told MarketWatch. “Even if the key shipping lane remains blocked for weeks, major consumers of oil should be able to absorb the disruptions with healthy local storage.”

The Energy Information Administration on Wednesday reported a fifth straight weekly rise in U.S. crude inventories, which current stand at nearly 503 million barrels — about 6% above the first-year average for this time of year.

Data from Baker Hughes BKR on Friday showed that the number of active U.S. rigs drilling for oil climbed by six to 324 this week, also pointing to the potential for higher production.

Given ample crude supplies, traders have focused on the “deteriorating fundamentals due to European lockdowns and the subsequent revisions lower for consumer demand estimates for the medium term,” said Richey.

Still, in a note dated Friday, analysts at Goldman Sachs view the decline in prices as “far overshooting the shifts in oil fundamentals.” They expect a return of lockdowns for most of the European Union region through April, but said the impact on transportation will likely remain modest.

Goldman Sachs expects global demand to accelerate by 4.5 million barrels per day into the third quarter compared with the first quarter, though that’s 800,000 barrels per day lower than its previous forecast.

The analysts also expect a “slower ramp-up” in production from the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, this spring to “help offset” both slower emerging market and European Union demand recovery and higher Iranian exports, “with global demand still set to increase sharply through the summer.” OPEC+ will meet on Thursday.

Rounding out action in the Nymex energy market, April gasoline RBJ21, +2.39% rose 2.4% to $ 1.97 a gallon, ending about 1.3% higher for the week, while April heating oil HOJ21, +3.46% added 3.6% to $ 1.81 a gallon, for a weekly decline of 0.7%.

Read: Gasoline prices look set to fall, but not for long

April natural gas NGJ21, -0.08% settled at $ 2.55 per million British thermal units, down 0.5% for the session, but up 0.9% for the week. The contract will expire at the end of Monday’s session.