Oil jumps 4% on fears Suez Canal blockage may last weeks

Prices, however, were still headed for a third consecutive weekly loss, with the outlook for demand dented by fresh coronavirus lockdowns in Europe

Oil prices rose more than 4% on Friday on worries global supplies of crude and refined products could be disrupted for weeks as workers try to dislodge a giant container ship blocking the Suez Canal.

It was a rebound from a sharp decline the previous session on concerns that fresh coronavirus lockdowns in Europe would hurt demand.

Brent crude rose $2.62, or 4.2%, to settle at $64.57 a barrel, after dropping 3.8% on Thursday. U.S. West Texas Intermediate (WTI) crude gained $2.41, or 4.1%, to settle at $60.97 a barrel, having tumbled 4.3% a day earlier.

Brent rose 0.1% over the last week, while WTI dropped 0.7%, its third weekly loss.

Read | Owner of ship stuck in Suez Canal aims to free it 'tomorrow night'

Oil trade was volatile this week, as traders weighed the potential impact of the Suez Canal blockage which happened on Tuesday against the effect of new coronavirus lockdowns.

"Today the market is up again as traders in a change of heart decided that the Suez Canal blockade is actually becoming more significant for oil flows and supply deliveries than they previously concluded," said Paola Rodriguez Masiu, Rystad Energy's vice president of oil markets.

The Suez Canal stepped up efforts on Friday to free the stuck mega vessel, after an earlier attempt failed. Efforts to free it may take weeks, with possible complications from unstable weather.

Of the 39.2 million barrels per day (bpd) of total seaborne crude in 2020, 1.74 million bpd went through the Suez Canal, according to data intelligence firm Kpler. Additionally, 1.54 million bpd of refined oil products flow through the canal, about 9% of global seaborne oil product trade, Kpler said.

On Friday, there were 10 vessels waiting at the entry points of the Canal carrying around 10 million barrels of oil, Kpler said.

Reeling from the blockage in the Suez Canal, shipping rates for oil product tankers have nearly doubled this week, and several vessels were diverted.

The oil markets were also lifted by worries over escalating geopolitical risk in the Middle East. Yemen's Houthi forces on Friday said they launched attacks on facilities owned by Saudi Aramco.

Read | Entire 25-member crew of cargo ship stuck in Suez Canal is Indian

Prices also drew support from expectations that the Organization of the Petroleum Exporting Countries and its allies will maintain lower production.

Goldman Sachs said it expects OPEC+ to keep production unchanged for May when the group meets next week, "with a still large ramp-up of 3.4 million barrels per day expected by September."

Acting a week ahead of the OPEC+ meeting, Abu Dhabi National Oil Company (ADNOC) has deepened crude oil supply cuts to Asian customers in June to 10%-15% from 5%-15% in May, several sources said.

In the United States, the number of rigs drilling for oil rose by six this week to 324, data from oil services firm Baker Hughes showed.

Still, the potential negative effect on demand from the coronavirus pandemic loomed. Germany's third wave of the coronavirus could turn into the worst one so far and 100,000 new daily infections is not out of the question, the head of the German Robert Koch Institute (RKI) said.