(Bloomberg) — Oil retreated in Asia as traders monitored efforts to dislodge a massive ship blocking the Suez Canal, with market volatility rising after two wild days that saw prices whipsaw around 6% in both directions.
Futures in New York slid 2.1% after prices surged back above $61 a barrel on Wednesday, clawing back almost all of the losses in the previous session. Work to re-float the container ship that’s stuck in the canal — a key trade route for crude flows — was suspended until Thursday morning in Egypt. The best chance of freeing the vessel may not come until Sunday or Monday.
The bounce in oil following the canal incident gave the market a much needed breather after a series of factors including softening demand combined to drive prices to a six-week low on Tuesday. U.S. crude stockpiles, meanwhile, have continued to climb, although domestic fuel consumption has expanded.
Despite the recent sell-off, oil is still up more than 20% this year and there is confidence in the longer-term outlook for demand as coronavirus vaccinations accelerate worldwide while OPEC+ output cuts tighten supply. The alliance is scheduled to meet next week to decide production policy for May in a gathering that will be keenly watched by the market.
“The rebound was overdone,” said Michael McCarthy, chief markets strategist at CMC Markets Asia Pacific. “If anything, Suez is only going to be a temporary shipping issue for oil. It doesn’t change the supply-demand equation and doesn’t change the long-term outlook in any way.”
The prompt timespread for Brent flipped back into a bullish backwardation on Wednesday after ending in a bearish contango in the previous session for the first time since January. It was 19 cents in backwardation on Thursday, compared with 67 cents at the start of the month.
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Tugs and diggers have so far failed to dislodge the container ship in the Suez Canal, which has led to a gridlock of vessels waiting to pass. The spring tide on Sunday or Monday will add extra depth and allow for more maneuvering, said Nick Sloane, the salvage master responsible for refloating the Costa Concordia.
The jam in the key shipping artery has so far blocked at least 10 crude tankers carrying a total of 13 million barrels, Vortexa said in a note. There are also nine laden vessels carrying petroleum products such as diesel. About 2 million barrels a day of crude and oil products have typically flowed through the canal over the past 12 months, according to estimates from Braemar.
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