Oil prices outlook with a look at the Egypt effect – 4 February

As all eyes continue to closely watch how and when the Egyptian turmoil will subside, , investors already speculate how the protests will affect, if any, major energy commodities and the crude oil price.

Let’s examine what is the current situation in Egypt and what could the implications be on major commodities and its effect on crude oil price for today, February 4th:

After 10 days of riots in Egypt, the protestors continue their fight to overthrown the current Egyptian president – Hosni Mubarak.

Despite his promise not to seek reelection in the coming elections in September, the rioters still hold their demand for Mubarak to step down from his presidency effective immediately.

Mubarak said on CNN and he is afraid that the riots will only escalate if he will step down before the elections.

Today, after the Friday prayer, thousands went to the streets of Cairo, and many gathered in Tahrir square to further demand the immediate resignation of Hosni Mubarak.

The uncertainty in the Region

Due to the riots in Egypt, other Muslim couturiers are already trying to preempt any escalation in their countries, e.g. in Yemen, president Salah announced he won’t seek reelection, however it seems that there is a rise among the people of Yemen calling him to step down.

The Muslim brotherhood, which is one of the fractions, related to the uprise against Mubarak in Egypt, there is a good chance they will be included in the new government, and some news media already claim that the Muslim brotherhood will act to revoke the current peace treaty with Israel.

Nonetheless, in times of uncertainty, there are many statements that fly as the speculation runs high, so it’s always good advice to keep an open mind and not to fall to every statement until you get the facts.

Crude oil Effect

There are two main aspects that the current turmoil in Egypt could affect crude oil price and the prices of other major commodities:

  • The Suez Canal: the gateway to the Far East and to Europe, through it there are many commodities that are being transported, including oil tankers; thus the stability in Egypt is pivotal for the Suez Canal to remain open. If the turmoil will affect the Canal this could cause impediments in the transport of major commodities including petroleum to Europe. For now, according to Bloomberg the canal is open with no disruptions, thus there is no cause for crude oil prices to hike because of this factor.

  • The uncertainty in the region: since the Middle East is one of the major regions in the world that provide crude oil the escalation in the region could cause many OPEC countries to hold back to their oil and resulting in the world shortage of oil. This scenario is plausible, but does not happen for now.

Because of the uncertainty the energy markets, crude oil price rose last week and the beginning of this week very sharply, however, for now the rises will probably subside as the price hike in the last several days already include the increase in the level of uncertainty.

For now crude oil price show moderate rises: the  Nymex crude oil price, short term futures (March 2011 delivery) is traded at 90.82 USD / barrel, a 0.28 USD/b rise or a 0.31% fall, as of 13.00 PM.

The Dated Brent spot crude oil is at 101.62 USD / barrel – a 0.33 USD/ barrel increase as of 13.00 PM.

As the day will progress, we will probably continue to see some more moderate price increase.

For further reading (in this site):

Oil prices rise due to Egypt riots – Weekly recap January 24-28