Oil prices have been on a wild ride for the last 24 hours, and that ride may continue after a mishap in the Suez Canal that is raising concerns about the availability of a much-needed global oil supply.

A huge container ship, trying to be a ship's version of a square peg trying to fit into a round hole, got stuck and while there are early reports the ship may be free soon, oil volatility has ramped up pushing prices back above the $60-per-barrel level.

TickerSecurityLastChangeChange %USOUNITED STATES OIL FUND L.P.41.63+2.24+5.69%Powered by

The MV Ever Given, a 400-meter-long container ship, is now lodged in one of the narrowest parts of the canal initial reports said the vessel could be stuck for days.

The reason why that is critical is that the Suez Canal is one of the most strategic routes for Persian Gulf oil and natural gas shipments to Europe and North America. It, along with the Sumed Pipeline, accounts for 9% of the world’s seaborne oil trade according to EIA data. There are reports of at least 100 vessels that are stuck behind this ship with its cargo locked in limbo. Some of that oil was destined for the United States.

This satellite image from Planet Labs Inc. shows the cargo ship MV Ever Given stuck in the Suez Canal near Suez, Egypt, Tuesday, March 23, 2021. A cargo container ship that’s among the largest in the world has turned sideways and blocked all traffic

Even before the shipping snafu, crude prices, after the best upward trend since 2016 hitting the $67 per barrel level, had a sharp reversal of fortunes, as prices pulled back in recent days to as low as the $57 level. That raised hopes for some that maybe, just maybe that gasoline and diesel prices that have been surging might ease and not get out of control this summer. I am afraid that is wishful thinking.

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The reason why oil prices dropped was because of another round of COVID lockdown fears in Europe and worries over the AstraZeneca vaccine. That raised fears that might slow what had been a solid recovery in global oil demand. This caused many to sell oil thinking that a new set of COVID lockdowns might kill demand as it did a year ago. Yet there are already signs this fear might be overblown.

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Oil's fortunes seemed to change again as we saw German manufacturing data blow away expectations to the upside reigniting oil demand expectations.

The delays in oil shipment come at a critical time for the U.S. energy industry that is counting on oil and gasoline supplies to replace lost barrels that were incurred during the recent Texas power outages. U.S. gasoline supplies have fallen in recent weeks as U.S. demand is rising. U.S. refiners really need to increase production as the summer driving season is just around the corner. If gasoline demand continues to recover, as I expect it will, refiners will have a hard time keeping up with demand. That means another surge in gasoline pump prices.

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While oil will have to deal with a lot of data, if we continue to see the demand recovery that we have seen in oil it will be just a matter of time before oil resumes its rally.

The Federal Reserve's expectations for 6.5% GDP growth along with the fact the OPEC plus is still withholding supply set the stage floor a very tight market.

In the short run, news about how fast the Suez Canal can reopen may cause some more swings in oil and product prices. So keep your seatbelt fastened and your hands and feet in the tram because it is going to be wild.   

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Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at [email protected].

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