Oil drops after Ever Given container ship blocking the Suez Canal is refloated

2021 03 29T081237Z_388890586_RC2WKM93CCRG_RTRMADP_3_EGYPT SUEZCANAL SHIP.JPG
The Ever Given was partially refloated on Monday

Oil prices fell on Monday and traders breathed a sigh of relief after the giant container ship Ever Given that has blocked the Suez Canal for almost a week was refloated.

Brent crude oil, the global benchmark price, fell as much as 2% before recovering somewhat to stand 0.6% lower at $64.03 a barrel on Monday morning. WTI crude was down 1.1% to $60.30 a barrel.

The fall in oil prices was a sign that the pressure on global supply chains is set to ease, with the local authorities saying they will act fast to try to clear the backlog of ships at the crucial trade route.

The Suez Canal Authority said on Monday the Ever Given ship, which has been lodged lengthways in the canal for almost a week, had been successfully refloated and brought away from the shore. It said the ship was not yet completely free, however.

It added: "Navigation shall be resumed immediately upon the complete restoration of the vessel's direction."

The Ever Given, an enormous container ship almost the length of the Empire State Building, has been stuck in the canal since Tuesday, completely blocking the route and snarling up global trade.

Almost 15% of world shipping goes through the Suez Canal, which cuts through Egypt from the Mediterranean to the Red Sea.

The blockage sent oil prices sharply higher, as backlogs of energy shipments built up. Brent crude had fallen to close to $60 a barrel on Monday, but rose near $65 over the week.

Other factors affected oil prices too, however, with uncertainty surrounding demand as economies recover and a meeting of the Opec oil cartel and its allies later this week.

"Brent has been trading soft in the morning session today after reports emerged that the ship blocking the Suez Canal has been refloated though it's still unclear how soon the trade route could be reopened," Warren Patterson, head of commodities strategy at Dutch bank ING, said.

Jefferies analyst David Kerstens said the Suez blockage would worsen global trade, which has already been disrupted by the coronavirus crisis.

He said shipping capacity on the Asia-Europe route will be "temporarily reduced by c.25%, while port congestion is set to further increase, in a market already characterised by supply chain bottlenecks and equipment shortages, which has resulted in record-high freight rates."

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