Oil futures ended higher Monday, shaking off earlier gains, with traders expecting shipping delays to persist, even as one of the world’s largest container vessels has been freed in the Suez Canal.
The ship had run aground nearly a week ago, blocking the flow of global trade goods, including crude oil, through the crucial waterway.
“The release of the tanker frees the bottleneck allowing awaiting oil and petroleum products” to pass through, but “there will still be a delay in their arrival,” said James Williams, energy economist at WTRG Economics.
He also said “many of the vessels are empty returning to Europe to pick up cargoes,” so “we can expect congestion in European ports for a while.” Freight rates should “normalize in a few weeks and we will see a bit of downward pressure on crude and product prices,” said Williams.
The Suez Canal Authority announced on Monday that the container ship, known as the Ever Given, was successfully refloated. The vessel was moving north to an anchor point, and shipping traffic began to move Monday afternoon, The Wall Street Journal reported Monday, noting that over 360 vessels were waiting to pass through the canal.
While the development in the Suez Canal is promising for the return of oil shipments through the water conduit, “due to the large number of vessels that have accumulated, it could still be days or weeks until the canal is fully back to normal operations,” said Louise Dickson, oil markets analyst at Rystad Energy.
“Some leftover downstream ripple effects should be expected in the meantime,” she said in daily commentary, adding that “oil loadings, as well as some oil demand could be affected as manufacturers may have to close or pause production as they wait for delayed goods to arrive at plants.”
Against that backdrop, West Texas Intermediate crude for May delivery CLK21, +0.97% CL.1, +0.97%, the U.S. benchmark, rose 59 cents, or 1%, to settle at $61.56 a barrel on the New York Mercantile Exchange. That was the highest front-month contract finish since March 17, according to Dow Jones Market Data.
Prices for both crude benchmarks had spent part of Monday’s session trading lower as news that the ship had been cleared from the canal emerged. On Friday, WTI posted a 0.8% weekly drop and Brent ended little changed for the week. The contracts had marked an entrance into correction territory last week, typically defined as a drop of at least 10% from a recent peak.
Traders looked to shift their attention away from the Suez Canal this week. Reports that Russia would support a rollover of oil output curbs to May contributed to strength in oil prices Monday.
“You have the OPEC meeting and headlines out there that Russia supports rolling over their production cuts from April to May,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.
He believes the delays tied to the Suez Canal “will work themselves out,” and focus is “now turning to the OPEC meeting.”
Members of the Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, will hold a technical committee meeting Wednesday, followed by a main gathering Thursday where traders expect producers to make a decision on production levels for May.
Russia would support a rollover to May of output curbs imposed by OPEC+, while seeking only a small hike for itself, Reuters reported Monday, citing a source familiar with Russia’s thinking.
Earlier this month, OPEC+ ministers approved a “continuation of the production levels of March for the month of April,” and Saudi Arabia said it would self-impose curbs on its production to keep prices in check, surprising markets and helping to send crude values firmly higher.
OPEC+ are holding back about 8 million barrels a day of output, 1 million of which represents Saudi production.
Still, there could be a pause in oil demand after the Easter holiday, said Zahir, especially if there continues to be an upward tick in COVID-19 cases and the new variant of the virus.
Back on Nymex, prices for petroleum products traded mixed, with April gasoline RBJ21, +1.69% up 1.4% to nearly $2 a gallon. April heating oil HOJ21, +0.02% settled nearly flat at $1.81 a gallon. The April contracts for both commodities expire at the end of Wednesday’s session.
The April contract for natural gas NGJ21, +1.92% tacked on 1.1% to end at $2.59 per million British thermal units on its expiration day. The new front-month May contract NGK21, +0.84% added 1.3% $2.65.