Energy Report: Chain Chain Chain

Supply chain disruption fears are becoming more real as it appears that the ship blocking the Suez Canel could take weeks to unlodge. The world's largest container ship, the Ever Given, has about 12% of global trade and is blocked. As the days mount, the backlog of ships rises to disrupt a spectrum of commodities and consumer goods from traveling to their destination. Companies now have to decide to wait or take a 6000-mile detour around the southern tip of Africa to get to their destinations. Not only does that add more than a week in many cases for ships to get to their destinations, but it also adds the cost of fuel and shipping rates.

Pump Jack, Oilfield, Oil, Fuel, Industry, Petroleum

Image Source: Pixabay

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 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. 

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