WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied Wednesday, with both benchmarks surging more than 5% following an overnight shipping mishap in the Suez Canal where a massive container ship ran aground and blocked passage of nearly a dozen oil tankers reportedly carrying 13 million barrels (bbl) of crude oil. Some better-than-expected industrial data out of the Eurozone also eased some concern over recent weakening economic readings from the continent and their ripple effect in slowing a recovery in global oil demand.
On the session, May West Texas Intermediate futures surged $3.42 to settle just above $61 bbl at $61.18 bbl and the May international crude benchmark Brent contract on ICE advanced $3.62 for a $64.41 bbl settlement. NYMEX April ULSD futures spiked 7.67 cents to $1.8256 gallon and front-month RBOB contact rallied 9.26 cents or 4.4% to $1.9890 gallon.
Wednesday's higher settlements were underpinned by a potentially prolonged disruption in the Suez Canal, where a 200,000-metric-ton container ship broke down and blocked traffic in one of the world's busiest artery for global oil trade. Sources say it might take a few days to pull the vessel out of the canal after it turned sidesways, choking off both northbound and southbound movement through the canal. Wire services indicate there are nearly 100 vessels awaiting the canal's reopening, including oil tankers carrying crude from the Persian Gulf.
The Suez Canal, which connects the Mediterranean Sea and Red Sea, transits over 18,000 ships a year, with few alternative shipping routes that could be used to transit oil.
The gains in the oil complex Wednesday came despite a mostly bearish inventory report from the U.S. Energy Information Administration showing domestic crude oil supplies climbed 1.9 million bbl during the week ended March 19, continuing the building pattern into the fifth consecutive week. Since Feb. 15 when Winter Storm Uri shuttered much of the refining capacity along the U.S. Gulf Cost, commercial crude stockpiles added a whopping 40.954 million bbl to lift inventories on hand to 6% above the five-year average.
Refined fuels supply also posted a sizable 4.01 million bbl build from the previous week, with a large chunk of that coming from growth in distillate stockpiles. Implied demand for distillate fuels missed the mark with a 436,000 barrels per day (bpd) drop to hit the lowest weekly rate since the first week of January at 3.592 million bpd.
Clues for the recent weakness in distillate consumption could be found in the ongoing supply disruptions across domestic industries that appeared to have taken a harder hit from Winter Storm Uri than initially thought. The index for business activity for U.S. manufacturing slumped to a five-month low 54.5% in March, limited by unprecedented shutdowns that began mid-February, according to the data collected by IHS Markit.
That, in turn, helped to push prices higher for most manufacturing goods, with the overall rate of inflation accelerating to the fastest on record this month as raw materials and fuel prices reportedly soared. Stronger demand conditions allowed for the partial passthrough of costs to clients, with the overall pace of selling price inflation also hitting the sharpest on record.
Federal Reserve Chairman Jerome Powell dismissed concerns over inflation during testimony Wednesday before the Senate Banking Committee, adding that the Fed's "best view is that the effects of inflation will be neither particularly large nor persistent." Although, he stressed prices could pop-up in the short-term amid pent-up spending and supply-chain bottlenecks.
Liubov Georges can be reached at firstname.lastname@example.org