Suez Canal blockage sends oil prices surging

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One of the biggest pieces of news on Wednesday was regarding the shipping incident that blocked the Suez Canal. As one of the most critical supply routes for oil originating from the Persian Gulf and global shipping in general, Egypt’s Suez Canal is the main reason why oil from this region hits Western markets so quickly. Otherwise, oil should have to be shipped via a much longer route around South Africa, it would make prices for Persian oil that much more expensive due to transportation costs. News broke that a large container ship ended up getting stuck in the canal, blocking any other ships from coming through.

Various tugs and diggers have been deployed to try and dislodge the stuck cargo freighter, which first lost steering amidst high winds and a dust storm. While authorities are doing their best to free the vessel, it might not be possible until sometime over this weekend, or even by Monday. Until then, no ships can pass through the canal at all. This includes at least ten oil tankers, which are carrying approximately 13 million barrels of oil.

The longer this delay remains in effect, the higher oil prices are expected to rise. While it’s possible that prices could rise to around $65 per barrel, it’s unlikely that this setback will send crude soaring any higher than that.

The Suez Canal will not spare any efforts to ensure the restoration of navigation and to serve the movement of global trade,” said Lt. Gen. Ossama Rabei, who heads the Suez Canal. While a setback, most Wall Street analysts aren’t overly concerned about this blockage. Michael Lynch, head of Strategy Energy & Economic Research, wrote that this oil jump “represents people buying in after recent declines in oil prices, with the Suez closing the trigger factor.” He added that the canal “won’t be closed for long.”

Some industry experts say that if the blockage isn’t fixed within the next couple of days, shipping companies will be forced to reroute these oil tankers around the horn of Africa, adding another week to their overall journey. Approximately 12% of global trade, as well as 30% of the planet’s shipping container volume, passes through the Suez Canal.

Oil prices jumped around $57.5 per barrel to slightly over $60.2 per barrel, around a 5% gain. For most of 2021, oil prices have skyrocketed to the $60s, a very healthy price for oil producers. Compare that back to 2020, when the pandemic was first spreading, and lockdowns were the norm, oil prices were crashing to around $10-$20 per barrel. At one point, prices even fell into the negative, the first time in oil’s history.

Energy companies also responded well to the news. Callon Petroleum (NASDAQ: CPE) is up around 9.8% in response to the news, while Bonanza Creek Energy (NASDAQ: BCEI) is up 9.2% as well. The biggest winner in the energy sector actually happened to be a microcap energy stock called Highpoint Resources (NASDAQ: HPR), which shot up more than 118.9%, although the Suez Canal news likely wasn’t the main catalyst for such an explosive jump.

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