Suez Canal steps up efforts to remove blockage as shipping rates surge, tankers diverted away

The Suez Canal stepped up efforts on Friday to free a giant stuck container ship and end a blockage that has sent shipping rates for fuel tankers soaring and disrupted global supply chains for everything from grains to baby clothes.

Shipping rates for oil product tankers have nearly doubled after the 400-metre (430-yard) long Ever Given ran aground in the vital trade waterway on Tuesday.

Efforts to free it may take weeks and be complicated by unstable weather conditions, threatening costly delays for companies already dealing with Covid-19 restrictions.

Shoei Kisen, Ever Given's Japanese owner, denied a news report that it aimed to dislodge it by Saturday night, saying refloating efforts were ongoing.

The Suez Canal Authority (SCA) said efforts to free the ship by tug would resume as soon as dredging operations at its bow to remove 20,000 cubic metres of sand are complete.

"In addition to the dredgers already on site a specialised suction dredger is now with the vessel and will shortly begin work. This dredger can shift 2,000 cubic metres of material every hour," said Bernhard Schulte Shipmanagement, the Ever Given's technical manager.

The SCA said it welcomed a U.S. offer to help. Turkey also said it can send a vessel to the canal, amid a recent push by Ankara to repair ties with Egypt after years of animosity.

The suspension of traffic through the narrow channel that links Europe and Asia has deepened problems for shipping lines that were already facing coronavirus-related disruptions in supplying retail goods to consumers.

Impact on Oil

About two dozen ships could be seen from the shores of Port Said on Friday morning, according to a Reuters witness.

Oil prices were up 2% at over $63 a barrel on Friday as more than a total of 30 oil tankers have been waiting on either side of the canal since Tuesday, shipping data on Refinitiv showed.

However, the delays come at a time of low seasonal demand for crude oil and liquefied natural gas (LNG), which will likely mitigate the impact on prices, analysts said.

Data intelligence firm Kpler said 10 crude oil tankers were awaiting entry to the canal. About 4 million barrels of mostly Kazakh CPC Blend and some Russian Urals were waiting along with tankers carrying Libyan, Azeri and some North Sea crude oil for Asian refiner, traders said.

Egypt's SUMED pipeline operator quickly approached crude traders to see whether they wanted to book space in the system but so far, traders prefer to wait to avoid high additional costs.

Analysts expect a greater price impact on smaller tankers carrying oil products, like naphtha and fuel oil, for export from Europe to Asia, if the canal remains shut for weeks.

"Around 20% of Asia's naphtha is supplied by the Mediterranean and Black Sea via the Suez Canal," said Sri Paravaikkarasu, director for Asia oil at FGE, adding that re-routing ships around the Cape of Good Hope could add about two weeks and extra fuel costs to the voyage.

The blockage is weighing on the already weak Asian gasoil, or diesel, market. More than 60% of Asian exports to the west flowed via the choked Canal in 2020, according to FGE.

"Aframax and Suezmax rates in the Mediterranean have also reacted first as the market starts to price in fewer vessels being available in the region," shipbroker Braemar ACM Shipbroking said.

At least four Long-Range 2 tankers that might have been headed towards Suez from the Atlantic basin are now likely to be evaluating a passage around the Cape of Good Hope, Braemar ACM said. Each LR-2 tanker can carry around 75,000 tonnes of oil.

The cost of shipping clean products, such as gasoline and diesel, from the Russian port of Tuapse on the Black Sea to southern France jumped 73% over the last three days to $2.58 a barrel on March 25, according to Refinitiv Eikon data.

The shipping index benchmark for LR2 vessels from the Middle East to Japan, known as TC1, has climbed by a third since last week to 137.5 worldscale points, said Anoop Jayaraj, clean tanker broker at Fearnleys Singapore. Worldscale is an industry tool used to calculate freight rates.

Similarly, the index for freight rates for Long-Range 1 (LR1) vessels on the same route, known as TC5, stood at 130 worldscale points on Friday, up from 125 at the end of last week. Worldscale is an industry tool used to calculate freight rates.

On the LNG side, Kpler said 10 cargoes were held up, six of which are laden and several LNG tankers have been diverted, one Singapore-based shipbroker said.

If the blockage lasts for two weeks, about one million tonnes of LNG could be delayed for delivery to Europe, according to Rystad Energy, which could more than double in a worst-case scenario month-long closure. Some European buyers concerned about delays to Qatari LNG deliveries may consider buying in the spot market.

Meanwhile, oil traders told Reuters they are adopting a wait-and-see approach to see if a higher tide due on Sunday would help.