Oil Prices Surge on Fears Unrest May Hurt Supply
Baku, February 1 (AZERTAC). Oil prices surged to levels not seen since 2008 on Monday amid fears the anti-government unrest in Egypt could ripple across the Middle East, potentially disrupting global oil supplies. Oil markets are also worried the chaos could paralyze the Suez Canal, a vital shipping lane, and the Suez-Mediterranean, or Sumed pipeline, which both run through Egypt bringing Middle East oil to Western markets.
"We`re dealing with a market that appears to be in panic mode," said Stephen Schork, an oil analyst and author of the Schork Report. "The fear is that this unrest could spread to a country that actually produces a lot of oil."
Oil prices were already on the rise even before the turmoil in Egypt, increasing by $30 a barrel since the summer as the global economic recovery pushed up demand for crude. That has put pressure on the Organization of Petroleum Exporting Countries, which has faced mounting calls from oil-consuming countries to raise output.
OPEC Secretary-General Abdalla Salem El-Badri said Monday the organization would open the spigots if the unrest in Egypt affected supply, though he said that was unlikely to happen. He stressed the market was well-supplied, with inventories full. OPEC says it has about six million barrels a day of spare capacity—equal to 7% of global demand—and can easily tap that if the world runs low on oil.
Brent crude oil rose $1.59 to settle at $101.01 a barrel on Monday, while the U.S. benchmark—West Texas Intermediate, or WTI—rose $2.85 to settle at $92.19 a barrel on the New York Mercantile Exchange. Both prices have not been reached since 2008. Brent, which is used to price oil in Asia and Europe, has been trading at a premium to WTI for months now, largely because of dwindling North Sea crude supplies coupled with rising demand for Brent in Asia and a cold winter in its main European market.
But some analysts expect Brent to fall again as the winter ends. "I`d be surprised if we have a sustainable breakout above $105 a barrel," said Ed Morse, head of commodities research at Credit Suisse. "The fact is, we`re in a market that is seeing seasonality re-emerging."
Combined, the Suez Canal and Sumed pipeline, which connects the Red Sea to the Mediterranean, carried about 2.6 million barrels a day to world markets in December, according to the International Energy Agency.
That makes them far less important than the Strait of Hormuz, through which some 40% of all seaborne traded oil flows. Also, unlike Hormuz, traders can use alternative routes if the Suez Canal is blocked—such as sending tankers round Africa.
But rerouting oil in this way would greatly increase voyage times—and also boost transportation costs, which would further drive up the price of oil.
"We estimate it could take an additional eight to 10 days for cargoes to reach the U.S., and another 15 days for them to get to Europe," said Julius Walker, an oil-market analyst at the IEA. "That would tighten markets, no question."
So far, there is no evidence the unrest has affected the Suez Canal and caused tankers to be rerouted. "The impact is negligible," said Bob Knight, managing director of deep-sea tankers at Clarkson`s, a London-based ship broker. "So far it`s just a watching brief."
A/S Maersk, a Danish shipping line, said it had closed its Egyptian office due to the unrest and that all ports have closed.
But a large international shipping logistics company, Gulf Agency Co. Ltd., said Monday that ship crews should avoid embarking or disembarking along the Suez Canal while the unrest continues. It issued the warning in a maritime security alert sent to its customers. It said vessel operators looking to change crews should do so in other regional ports, including Aqaba in Jordan, Jeddah in Saudi Arabia and Al-Hudaydah in Yemen. Foreign oil firms were evacuating staff out of Egypt, including Russia`s OAO Lukoil and OAO Novatek were bringing staff home Monday. BP, which produces 150,000 barrels of oil equivalent in Egypt—a sizable chunk of its 3.8 million barrels a day of global output—said it had started to evacuate the dependents of its expatriate employees, and BG Group PLC said it had brought home all nonessential, non-Egyptian staff.
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