Incident in Suez Canal will hardly exert serious influence on oil prices — expert

Business & Economy March 25, 2021, 23:55

At the same time, analysts highlight the risk of delays in supplying huge volumes of liquefied natural gas (LNG) to Europe

LONDON, March 25. /TASS/. The Suez Canal blocking due to the container ship aground should not affect oil prices strongly, particular because of depressed demand for raw hydrocarbons in Europe, Head of Oil Markets with Rystad Energy Bjornar Tonhaugen told TASS in a comment.

"The destination of the oil tankers that can’t cross the Canal is mostly Europe, but Europe is also now the continent that is imposing the strictest lockdowns and where oil demand is decreasing rather than requiring more product. If Europe was in a better state in its Covid-19 battle, then the disruption would possibly create a more prolonged issue but this is not the case. That is why traders today quickly corrected some of the previous day’s gains," Tonhaugen said.

"It is unlikely that efforts to resolve the issue and resume normal traffic will take more than a few days. Yet the downside risk exists and if weeks are needed to free the vessel, oil prices will be affected," the analyst added.

Situation with LNG

At the same time, analysts highlight the risk of delays in supplying huge volumes of liquefied natural gas (LNG) to Europe.

"The Suez Canal is one the world’s busiest trade routes, and this blockade is having great implications on global trade, including LNG, as shipments to Europe from one of the world’s largest LNG producers - Qatar - essentially all pass through there," Head of Gas and Power Markets Carlos Torres Diaz said in a comment.

"The Canal is the main route for LNG cargoes heading from the Middle East to Europe and for some cargoes heading from the Mediterranean to Asia. During 2020, close to 260 LNG cargoes were sent from Qatar to Europe via the Suez Canal, or an average of five per week," the expert said. "The complete route from Qatar to northwest Europe takes around 17 days and the alternative route around the Cape of Good Hope would take more than 30 days, making this an unviable option, at least for the time being," he added.

The potential interruption with gas supplies can benefit Russia and Norway in this situation, Torres noted. "Looking at who benefits most from the current situation, Russia is definitely the country that is not in a hurry to see the blockade resolved.

Norway would normally get a boost too, being Europe’s second largest gas supplier, but its pipeline system is already running at almost maximum capacity," the expert said.

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