The Suez Canal Blockade has caused shipping prices to spike, and oil and gas tankers have been diverted.

 The Suez Canal Blockade has caused shipping prices to spike, and oil and gas tankers have been diverted.

Shipping prices for oil product tankers have nearly doubled this week as a result of the Suez Canal blockage, and many vessels have been redirected away from the crucial waterway as a large container ship sits wedged between both banks. The Ever Provided, which is 400 metres long, has been trapped in the canal since Tuesday, and attempts are underway to free it, though the operation could take weeks due to the bad weather. The cessation of traffic across the narrow channel connecting Europe and Asia has compounded difficulties for shipping lines already suffering congestion and delays in providing retail products to customers.

 If the canal remains closed for weeks, analysts foresee a greater upward effect on smaller tankers and oil products such as naphtha and fuel oil shipments from Europe to Asia. "The Mediterranean and Black Sea supply about 20% of Asia's naphtha through the Suez Canal," said Sri Paravaikkarasu, FGE's Asia oil operator, adding that re-routing ships around the Cape of Good Hope could add two weeks to the voyage and over 800 tonnes of fuel consumption for Suezmax tankers.

Fuel is a ship's single largest burden, accounting for up to 60% of all running costs. In comparison, the blockage is worsening an already sluggish Asian gasoil, or petrol, market, since Asia exports the fuel to markets in the west, such as Europe, where more than 60% of the fuel flowed through the clogged Canal in 2020, according to FGE.

Since Tuesday, more than 30 oil tankers have been waiting to transit through the canal on either side, according to shipping data from Refinitiv. "Aframax and Suezmax prices in the Mediterranean have also responded first as the market begins to price in fewer vessels available in the area," said Braemar ACM Shipbroking, a shipbroker.

According to Braemar ACM, at least four Long-Range 2 tankers that were en route to Suez from the Atlantic basin are now likely to be considering a route across the Cape of Good Hope. Each LR-2 tanker has a capacity of approximately 75,000 tonnes of oil. It also added that rising demand for Atlantic Basin crude in Europe would expand the use of smaller tankers and support freight prices.

According to Refinitiv, the rate of exporting renewable goods like gasoline and diesel from the Russian port of Tuapse on the Black Sea to southern France rose by 73 percent from $1.49 per barrel on March 22 to $2.58 per barrel on March 25.

According to Anoop Jayaraj, clean tanker broker at Fearnleys Singapore, the shipping index benchmark for LR2 vessels from the Middle East to Japan, also known as TC1, had risen to 137.5 worldscale points as of early Friday, up from 100 worldscale points last week.

Similarly, the TC5 index for freight prices on the same route for Long-Range 1 (LR1) vessels was 130 worldscale points on Friday, up from 125 at the end of last week. Worldscale is a freight rate calculator used for the business.

Analysts conclude that the effect of the shipment delays on energy prices will be mitigated by the fact that demand for crude oil and liquefied natural gas (LNG) is at its lowest point of the year. "Because of the seasonal aspect of this traffic, we are unlikely to see pressure placed on LNG shippers shifting cargoes to the east, as the longer and cheaper Cape routes are preferred," said Kpler, a data intelligence company.

Several LNG tankers have been diverted, according to one Singapore-based shipbroker, who also said that LNG tanker prices have improved as a result of the incident. He went on to say that some European buyers might be exploring other alternatives, such as purchasing LNG on the spot market, if they expect LNG from Qatar to be delayed. Analysts say the effect would be marginal because LNG demand is at its lowest point of the year.

According to Carlos Torres Diaz, Rystad Energy's head of gas and power markets, if the blockage extends two weeks, around one million tonnes of LNG may be postponed for export to Europe.

In the worst-case situation of the Canal being closed for four weeks, this could double to more than two million tonnes in overdue freight deliveries, he said. Meanwhile, oil traders told Reuters that they are waiting to see whether a higher tide forecast on Sunday will help. "Some cargoes have been stranded... It would be more difficult to circumnavigate the Cape of Good Hope "a merchant from a western company said