Oil Sinks as Suez Canal Ship Refloated

(Bloomberg) -- Oil retreated as salvage teams refloated the giant vessel that has been blocking the Suez Canal, and traders weighed the impact of renewed lockdowns on global energy consumption before an OPEC+ policy meeting.

West Texas Intermediate lost as much as 2.5%, while Brent fell. Crude has seen rising volatility in recent sessions, with WTI swinging between gains and losses last week. The Ever Given has been successfully refloated and maneuvers to move it from the waterway will continue, the Suez Canal Authority said.

Traders were also tracking the advent on Monday of a significant new contract, with Abu Dhabi kicking off futures for its oil in a bid to establish a fresh benchmark. The product “provides an additional tool that the market has been looking for,” Khaled Salmeen, executive director of supply and trading at Abu Dhabi National Oil Co., said in an interview with Bloomberg Television.

Oil is still set to close out a fourth consecutive quarterly gain this week, aided by sustained supply curbs imposed by the Organization of Petroleum Exporting Countries and its allies, and optimism that global demand will expand as coronavirus vaccines get rolled out. But a run of three weekly losses for WTI has put a dent in crude’s performance, underpinning speculation that OPEC+ will again refrain from easing curbs when ministers meet on April 1.

“With the Suez and OPEC+ uncertainties on top of a foggy demand picture, we may see big mood swings and high intraday volatility,” said Vandana Hari, founder of consultancy Vanda Insights. “I don’t see how OPEC+, or the Saudis, could risk putting more oil into the market after the downward pressure on crude of the past fortnight.”

The crisis in the Suez Canal has caused a vast backlog of ships on either side of the vital waterway, and spurred some vessels to avoid the congestion by taking the longer, much costlier route around Africa. Rates for tankers have increased, boosting the cost of shipping crude around the world.

Despite progress with vaccines, the Covid-19 pandemic remains a challenge. Global cases rose for a fifth week, with several European nations facing a resurgence. Brisbane, Australia’s third most-populous city, will enter a three-day lockdown, while India’s Maharashtra -- which encompasses Mumbai -- asked authorities to prepare for another shutdown if a rebound isn’t quelled. Also in Asia, the Philippine capital is also back under strict curbs.

At the last OPEC+ gathering, the alliance surprised investors by sticking with curbs despite expectations the taps would be loosened. This time around, Goldman Sachs Group Inc. is among banks forecasting no change for production in May. Citigroup Inc. has said the restrictions may even be tightened.

Brent’s prompt timespread was 17 cents in backwardation. While that’s a bullish pattern -- with near-term prices above those further out -- it’s down from 67 cents at the start of March.

Adding to oil’s near-term headwinds on Monday was a gain in the dollar, which can hurt demand for commodities priced in the U.S. currency. The greenback rose as broader financial markets were rattled after a major U.S. hedge fund defaulted on margin calls, eroding some appetite for risk.

--With assistance from Andrew Janes and Ben Sharples.

© 2021 Bloomberg L.P.