Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
The Wall Street Journal writes that, “Sailing around the southern tip of Africa rather than going through the Suez Canal can add 15 days and costs of $450,000 to the voyage, Mr. Singh said. As a result, vessels already close the canal, appear to be sticking to their plans.”
It’s not just about oil but about supply chains that can hurt the global economy at a time when supply chains are already stressed. This will impact the price as 400 million of goods per hour. Caterpillar has already warned that this is going to be an issue. Bloomberg News reports that, “Caterpillar Inc., the U.S.’s largest machinery producer and one of the biggest in the world, is facing shipment delays due to the Suez Canal blockage and is even considering airlifting products if necessary. Other firms will also have to make decisions. I hope those containers are not carrying toilet paper.
Still, according to the Wall Street Journal that reports the equivalent of 2 million barrels a day of crude and refined oil products are currently stuck at the canal—about 2% of global oil consumption. The oil market, already in a shoulder season correction mode, is not freaking out yet but most likely will if the blockage goes on for more than 2 weeks.
Oil is also going to be focused more on the upcoming OPEC Plus meeting where it is more likely that the group will look to extend production cuts. India is trying to pressure Saudi Arabia to raise output but it is unlikely they will without support from their Biden administration. Yet the Biden wants higher energy prices to push his green agenda forward. As the American people feel the pain at the pump, the Biden administration will just blame the Trump administration as they do for all of their epic failures.
Geopolitical risk for oil is on the rise as well. Iran has been attacking Israeli vessels and this has been going on for a while. An Iranian missile hit an Israeli-owned cargo ship in the Arabian Sea, The ship was making its way from Tanzania to India when the missile hit. The ship – owned by XT Management, which is chaired by Israeli Udi Angel – carried on to its destination with the damage it suffered. The military said that at this stage, it would not comment on the report according to Haaretz.
RT reports that an attack on an oil terminal on Saudi Arabia’s Red Sea coast set one fuel tank ablaze, the country’s petroleum ministry said, after several Houthi drones reportedly targeted two cities not far from the border with Yemen. A projectile struck an oil terminal in Jizan, a port on the Red Sea north of the Saudi-Yemen border on Friday, igniting a fire but resulting in no casualties, according to a statement from the Saudi Oil Ministry. “The kingdom condemns this cowardly attack directed against vital installations, which does not target the kingdom only, but also targets the security of petroleum exports, the stability of energy supplies to the world, and the freedom of global trade,” the ministry said.
All of this backdrop bodes well for oil in the long run. Continue to use weakness to hedge. We think that March for oil may go out like lamb and April will be an oil lion.
Natural gas should be getting close to a bottom. The EIA reported that working gas in storage was 1,746 Bcf as of Friday, March 19, 2021, according to EIA estimates. This represents a net decrease of 36 Bcf from the previous week. Stocks were 263 Bcf less than last year at this time and 78 Bcf below the five-year average of 1,824 Bcf. At 1,746 Bcf, the total working gas is within the five-year historical range.
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