Another legendary meme was created last week when Egyptian authorities released an image of the 400-meter container ship blocking the Suez Canal and being dug out by what seemed to be a miniature excavator. The humongous vessel has been stuck since Tuesday, blocking one of the most important waterways in the world, with around 10% of global trade transported through the Suez annually.
Oil prices experienced volatility not seen since October 2020 due to a blockage at the Suez Canal. A 400-meter container ship, taller than the Eiffel tower, got stuck sideways during a dust and sandstorm. The Egyptian authorities have been working since Tuesday, engaging with elite rescue teams, attempting to re-float the boat. The huge vessel ‘Ever Given’ has shifted by today around 80 meters, and the hope is that normal traffic would resume in the Suez today. The blockage is costing around US $ 9.4 billion in trade daily and currently around 350 vessels, carrying everything from cattle, oil, LNG and consumer goods, have been forced to wait. Blockage is adding additional stress to logistics infrastructure, already under strain due to coronavirus related disruptions, but also owing to a spike in e-commerce and inventory replenishment. A number of vessels have taken the longer route around the southern tip of Africa, adding around a week to the trip. The estimates for the Canal to re-open range from a few days to weeks. The effect on oil price is likely to be short-term from this event as long-term catalysts, such as the Chinese Manufacturing PMI published this week and European lockdowns, are more likely to start a new trend.
Oil futures jumped nearly 6% to US $ 61.2 on Wednesday, when the news broke. Oil volatility, measured as OVX, jumped 33.5% on the day. Price continued to trade between US $ 58.4 and 60.9 throughout the week but eventually closed -0.76% down for the week. Price has lost 2.36% today after the vessel was refloated. Strong U.S. dollar has been adding pressures to oil and other commodities. Oil futures have retreated -8.5% from swing highs of US $ 67.98 early in March, whilst the USD, measured as DXY, is up almost 90 basis points for the same period. Momentum indicators are still bullish for oil futures on the daily chart, although short-term momentum has weakened with 8-day exponential moving average (EMA) crossing below 21-day EMA. Stochastic of 24 signals that price is currently near the lower range. Resistance levels are near 61.50 and 62.08, while support is near 58.43 and 57.37. Weekly chart confirms the bullish trend short-term, albeit 200-week simple moving average (SMA) is still above 50-week SMA.
The other big story is the dollar regaining its strength. The Greenback, measured as DXY, has now recovered to a 4-month high of 92.77. Price pierced through 200-day SMA on Thursday, supported by strong momentum, but looks now extended based on the stochastic. Resistance levels are near 92.81 and 92.91, while support is near 200-day SMA 92.56 and 92.38. Weekly chart confirms bullish short-term momentum, but long-term moving averages are still well above the price. USD upward trend is expected to continue as fundamentals and relative growth expectations are tilted towards the U.S. 2021 GDP is expected to grow 7% as per the latest projections, vs around 4% in the U.K. and the EU. The EU projection was released before the latest wave of lockdowns in major European economies. USD strength weighs heavily on commodities and risk assets with oil (-0.59), copper (-0.54) and EM equities (-0.47) having the highest negative correlation, as reported by Bloomberg. Nikkei 225 (+0.14), Stoxx600 (+0.14) and long bond strategy (+0.13) have the highest positive correlation with the dollar.
S&P 500 closed up 1.57% at an all-the-high of 3,974.55, the Nasdaq 100 rose -0.87%. Russell 2000 slid -2.89%. DXY was up 0.92%, putting pressure on oil (-0.76%) and gold (-0.70%).
Have a great trading week ahead!