What started as an embarrassing moment for the cargo ship Ever Given’s captain turned into an international incident that threatened the flow of crude oil.
The Suez sees billions of barrels of oil pass through as ships bring it to Europe. If this gets blocked, then oil prices are sure to rise.
And that’s exactly what happened.
After plotting a course that drew quite an inappropriate image (don’t Google it at work), the Ever Given proceeded into the Suez Canal…
Only to get stuck halfway through.
As you’d expect, oil prices went up… AND 13% of global trade ground to a halt.
No one could get their ships through the canal.
Fortunately, 8 days later, the Suez is finally open again for business.
So does that mean oil can continue its downward trend?
Well, there’s more to oil prices than a ship drawing a crude (pun intended) image in the ocean, then lodging itself into one of the world’s most important shipping lanes.
In fact, some signs point toward the downward trend slowing.
For example, the US shale industry just posted a year of positive free cash flow in 2020.
They cut a lot of spending to do it, but they did.
Positive cash flow is usually a good sign of financial health.
On top of that, OPEC is meeting April 1 to discuss May oil supply.
They’ve indicated they want to keep production lower — they’re hoping to offset the lower demand outlook in Europe resulting from more lockdowns.
Speaking of OPEC countries, we’ve got some geopolitics pushing up prices.
Yemeni Houthi forces attacked a Saudi Arabian oil facility on Friday, March 26, which caused prices to jump (although they settled back down a bit).
Why up?
Well, it comes back to supply.
If an oil-exporting country were to go to war, they’d use more of their own oil — not to mention it might simply be harder to get oil from that country for geographic reasons.
That said, gasoline and distillate supply in the US is building up, so we may not see any longer-term surge in oil prices.
Crude inventories increased by 1.9 million barrels by the end of the week of March 19 to 502.7 million barrels, much higher than analysts’ expectations in a Reuters poll for a 272,000-barrel drop.
Distillate stockpiles, which include diesel and heating oil, rose by 3.8 million barrels in the week to 141.6 million barrels, versus expectations for a 122,000-barrel drop, the EIA data showed.
Quite the difference.
U.S. gasoline stocks rose by 203,000 barrels in the week to 232.3 million barrels as well, according to the EIA, although this was much smaller than analysts’ expectations of a 1.2 million-barrel rise.
So now you’ve got some nice little tidbits of oil and energy news.
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