- The massive cargo ship blocking the Suez Canal will send the price of oil skyrocketing, JPMorgan said in a note published Thursday.
- If not resolved soon, investors can expect shipping rates to soar and energy commodities to further increase.
- All these risks, however, can be hedged by buying oil, the investment bank said.
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The massive cargo ship blocking the Suez Canal and obstructing one of the world’s busiest waterways will send the prices of oil skyrocketing, JPMorgan said in a note published Thursday.
JPMorgan’s chief global strategist Marko Kolanovic said if this situation is not resolved soon, investors and consumers can expect shipping rates to soar, energy commodities to further increase, and global inflation to continue to rise
All these risks, however, can be hedged by buying oil and associated equities such as energy and shipping, Kolanovic said. The strategist highlighted his long-term positive view on oil and energy stocks and his opinion that a supercycle in energy commodities may be under way.
The vessel, called Ever Given, a nearly 200-foot-wide and 1,300-foot-long cargo ship that is taller than the Eiffel Tower, has been horizontally wedged in the waterway for more than two days, despite ongoing efforts to dislodge it. It was on its way to the port of Rotterdam in the Netherlands from China.
Oil prices on Wednesday rose after news of the cargo ship sparked concerns of fuel shortage. West Texas Intermediate crude futures and Brent crude futures surged to their highest since November. The Suez Canal, the second-biggest shipping channel in the world, is a key shipping route for crude and refined products, connecting Europe to Asia.
The incident has captured the news cycle and points to the fragility of the infrastructure that supports global trade.
“Around 10% of global trade shipments pass through the Suez Canal on an annual basis, including crude and refined oil and liquefied natural gas,” Phillip Braun, professor of Finance at Northwestern University, wrote in a note. “This adds one more issue to the global shipping sector on top of the current pandemic.”
Oil analytics firm Vortexa in a tweet on Thursday said: “If flows remain disrupted for more than a few days, some European refiners could run short, particularly of sour crude feedstocks and tighten an otherwise weak physical European market.”
With the blockage, hundreds of cargo ships are now unable to pass through the canal. Many are forced to divert their routes or wait it out, exacerbating the shortages and shipping delays that have already compounded since the pandemic began last year. Companies since then have struggled to keep up with consumers’ demands as Americans locked down at home order goods from Asia.
Major brands such as Nike, Honda, and Samsung at the height of the pandemic have already warned their customers of dwindling supplies, with some halting production of certain products altogether.
In February, oil and natural gas prices have also climbed as the arctic blast that unexpectedly swept through Texas, leaving thousands without power, threw the energy markets in deep turmoil.