WASHINGTON (DTN) -- Crude and refined products futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed higher in early trade Wednesday, with the international benchmark trading as much as 2% higher amid reports a massive Evergreen container ship ran aground in the Suez Canal, choking off passage through one of the world's busiest arteries for oil transit.
The 200,000-tonne vessel en route from the Red Sea to the Mediterranean suffered an extensive blackout early Wednesday, causing the ship to turn sideways in the middle of the critical corridor for global oil trade, blocking both northbound and southbound channels.
The Suez Canal, which connects the Mediterranean Sea and Red Sea, transits over 18,000 ships a year, with a large chuck of those vessels oil tankers heading to Europe from the Persian Gulf region. Traders think there are few alternative sources and shipping routes that could be used to transit oil, but if the blockage lasts for more than a few days, it could impact global supplies for a longer duration.
The disruption in the Suez Canal is seen as an isolated incident but nonetheless prompted short-covering following Tuesday's sell-off that sent oil prices down more than 6%. The rally in the oil complex, with an uptrend that began in November and accelerated in the first quarter through early March was reversed over the past 10 days amid growing demand concerns with more aggressive lockdown measures being taken in Europe to combat a third wave of COVID-19 infections. Further restrictions in the European Union could dent global oil demand by as much as 1 million barrels per day (bpd), according to estimates from Rystad Energy.
Further weighing on the complex, the U.S. Dollar Index pushed higher in overnight trade to above 92.4-level as Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen prepare for the second day of a joint testimony before the Senate Banking Committee. Investors hope Yellen and Powell can articulate the risk of rising inflation and potential implications for monetary policy. Powell on Tuesday reiterated his position that inflation could appear as pent-up demand held back by a yearlong pandemic collides with supply chain constraints, but there's plenty of slack in the economy and that long-term inflation dynamics do not change on a dime.
Separately, American Petroleum Institute said Tuesday domestic gasoline stockpiles fell by a more than expected 3.728 million barrels (bbl) during the week ended March 19 compared with analyst estimates for a 700,000 bbl build, while distillates posted a marginal 246,000 bbl increase from the previous week that was mostly in line with market consensus. Commercial crude oil stockpiles climbed nearly 3 million bbl from the previous week, far exceeding analyst expeditions for a 200,000 bbl draw.
Energy Information Administration will release its weekly inventory report at 10:30 a.m. ET.
In early morning trade, May West Texas Intermediate futures traded near $59 bbl, up $1.27 and the May international crude benchmark Brent contract on ICE moved just above $62 bbl. NYMEX April ULSD futures advanced 2.55 cents to $1.7744 gallon and front-month RBOB contact gained 1.86 cents to near $1.9150 gallon.
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