InvestorQ : Why did oil prices rebound on Wednesday, after a sharp fall over the last few days?
Anamika Sodhani made post

Why did oil prices rebound on Wednesday, after a sharp fall over the last few days?

Angel dcosta answered.
1 year ago

Oil prices had peaked earlier in the month around $70/bbl in the Brent Crude market. However, from that point, the price of crude corrected 12% on concerns that the second wave of COVID afflictions could impact growth negatively. After a string of down moves, crude prices rebounded on Wednesday. What triggered this rebound?

One of the key reasons was the Suez Canal blockade which has raised fears of supply. This is nothing like the Suez Canal blockade of earlier years. For example, in 1956, Egypt had nationalized the Suez Canal leading to a major disruption. Subsequently, in 1967 in the Arab-Israeli war, Egypt again blocked the Suez Canal for almost 8 years by packing up the canal with landmines. This forced ships to take a route via the Cape of Good Hope in Africa.

However, the Suez Canal blockade in 2021 is much more benign which was purely caused by a container ship running aground. It must also be remembered that today the Suez Canal plays a much smaller role in global oil trade. Efforts are currently on to move the vessel but it is expected that the blockade in the route could continue for several days. These shortage fears led to a spike in the price of oil.

Crude was also boosted by positive economic data as Europe posted record increase in factory output. But clearly, the spike was an immediate outcome of the Suez Canal blockade and a rebound from lower levels after the recent spike in COVID cases had resulted in oil prices falling over 12% from recent peaks. Even today, the Suez Canal is regularly used to move oil from Middle Eastern producers to European consumers.