Crude-oil prices surged 3.4%, to above $89 a barrel.As set out by the U.S. Energy Information Agency, the Suez Canal is a major energy chokepoint:
"That's the most immediate concern, what's happening in Egypt and how that might affect oil prices if the Suez Canal gets closed, which is a real possibility," said Ed Cowart, lead manager of Eagle Asset Management's Large Cap Value and All Cap Value and Equity Income Strategies. He noted if the canal is closed, it could add substantially to the travel time for oil to get from the Middle East to the West.
Shares of tankers and shippers climbed as investors bet on a shutdown of the Suez Canal. Frontline jumped 8.5%, Overseas Shipholding leapt 5.9% and General Maritime advanced 6.9%.
The Suez Canal is located in Egypt, and connects the Red Sea and Gulf of Suez with the Mediterranean Sea, covering 120 miles. Petroleum (both crude oil and refined products) accounted for 16 percent of Suez cargos, measured by cargo tonnage, in 2009. An estimated 1.0 million bbl/d of crude oil and refined petroleum products flowed northbound through the Suez Canal to the Mediterranean Sea in 2009, while 0.8 million bbl/d travelled southbound into the Red Sea. This represents a decline from 2008, when 1.6 million bbl/d of oil transited northbound to Europe and other developed economies.Additional distance raises shipping costs and slows delivery - possibly leading to temporary shortages.
Almost 35,000 ships transited the Suez Canal in 2009, of which about 10 percent were petroleum tankers. With only 1,000 feet at its narrowest point, the Canal is unable to handle the VLCC (Very Large Crude Carriers) and ULCC (Ultra Large Crude Carriers) class crude oil tankers. The Suez Canal Authority is continuing enhancement and enlargement projects on the canal, and extended the depth to 66 ft in 2010 to allow over 60 percent of all tankers to use the Canal.
Closure of the Suez Canal and the SUMED Pipeline would divert tankers around the southern tip of Africa, the Cape of Good Hope, adding 6,000 miles to transit.
A graphic presenting the alternative to the Suez Canal from here:
Hat tip: MDB from his comment to a post below.