Why the blockage of the Suez Canal matters for oil prices

Why the blockage of the Suez Canal matters for oil prices

The importance of the Suez Canal in Egypt was laid bare for all to see on Wednesday, as oil prices rallied after a cargo ship ran aground, blocking the critical chokepoint for Persian Gulf oil.

Wednesday's "blip“ in the oil market "represents people buying in after recent declines in oil prices, with the Suez closing the trigger factor,“ said Michael Lynch, president of Strategic Energy & Economic Research. However, he believes the Suez Canal "won't be closed for long.“

"The Suez Canal will not spare any efforts to ensure the restoration of navigation and to serve the movement of global trade,“ said Lt. Gen. Ossama Rabei, head of the Suez Canal Authority, according to the Associated Press.

Still, prices for oil on Wednesday, rebounded to recoup much of their recent losses, after settling Tuesday at their lowest in about six weeks.

In Wednesday dealings, U.S. benchmark May West Texas Intermediate crude

CLK21, +5.82%



CL.1, +5.82%

rose $2.74, or 4.7%, to $60.50 a barrel on the New York Mercantile Exchange, following a 6.2% drop Tuesday. May Brent