The ongoing halt to transit through the Suez canal will reduce crude cargo arrivals into the Mediterranean and Europe at a time of thin demand, while light sweet crude cargoes remain stuck in the Mediterranean.
The 400m container vessel Ever Given ran aground in the Suez canal more than three days ago, blocking vessel flows through the critical waterway between the Red Sea and the Mediterranean. The ship's owner, Japan's Shoei Kisen, has now set a target of tomorrow to move the Ever Given, but other market participants estimate the timeline for a resolution could be anywhere between a day and two weeks.
A source at the Suez Canal Authority said that flows have remained undisrupted through the nearby Sumed pipeline that connects the Ain Sukhna discharge point in the Red Sea with Egyptian storage at Sidi Kerir. The pipeline can be contracted for commercial transfers, and is the main vehicle of Saudi state-owned Aramco's supplies into the Mediterranean, with most European refiners — and some of their North American counterparts — collecting their monthly allocations from Sidi Kerir. The Sumed pipeline completely bypasses the Suez canal and should not be impacted, a Saudi source said.
Three traders said they have been approached with commercial offers to use the Sumed pipeline instead of the Suez Canal, while another said that an Israeli pipeline option — linking Ashkelon on the Mediterranean and Eilat on the Red Sea — is also available.
But a market source signalled that diverting existing journeys through the Sumed now would expose traders to hefty costs, between the Sumed tariff, payments for a previously chartered vessel to traverse the Gulf of Suez to Ain Sukhna, and additional shipping fees to book a prompt voyage for a second tanker, which would collect volumes piped to Sidi Kerir. The canal blockage will most affect crude that is already on route or will depart shortly, with many ships fixed for loading seven to 10 days out, another trader said.
The ongoing blockage is less critical for crude arrivals into Europe and the Mediterranean, as many regular inflows — including light sweet Nigerian supplies and US WTI Midland — do not transit through the canal. While Saudi crude is largely procured from Sidi Kerir, Argus tracking data show that only 18,000 b/d of west-bound Iraqi Basrah that loaded over January-February discharged at Ain Sukhna for Sumed transit, with 412,000 b/d heading directly to European customers, probably through the canal. If Basrah shipments must be diverted, a trader said some buyers could ask Iraqi marketer Somo for freight compensation — referring to the monthly reimbursement that the company can pay or request from its European and US customers, depending on the shipping assumptions that underpinned its official formula prices.
More substantively, market participants said that long-term Suez disruption will deprive light sweet grades of an eastern outlet, at a time when European demand has been curtailed by fresh Covid-19 lockdowns, weighing on differentials for CPC Blend, Azeri, Libyan and Algerian crudes. Eastern flows of these grades dwindled in recent months, but cargoes departing in late-March and early-April could reach Asia amid expected demand increases at the end of the regional spring maintenance turnarounds. Around 208,000 b/d of January/February-loaded Libyan crude and 93,000 b/d of Algerian Saharan Blend sailed east, Argus tracking shows. Vortexa data show that 305,000 b/d of Caspian CPC Blend and 108,000 b/d of Azeri crude that loaded in January-February departed for Asia.
East-bound sailings of North Sea crude and Baltic Sea Urals are likely to remain undisrupted, as both typically travel via the Cape of Good Hope. Rare Suezmax volumes of Black Sea Urals head east via the Suez Canal, Vortexa indicate the last such shipment left for India on 19 January.
