Oil prices outlook with the Egypt coup completed – 11 February

The Mubarak regime has ended after 29 years of ruling Egypt.

Let’s examine what is the current situation in Egypt, and how did the commodities market reacted so far by examining the crude oil price:

After more than a couple of weeks of Egyptian riots, the coup has completed: today, the former President of Egypt – Hosni Mubarak, stepped down from his presidency.

Mubarak gave in to the Egyptian people’s demand and relinquished his presidency to the army, according to the announcement given by his deputy Suleiman.

Furthermore, Mubarak left Cairo with his family to his Pied-à-terre in Sharm el-Sheikh; from there he is expected to leave to Europe.

Despite the coup in Egypt has completed, there are still many open questions and uncertainty regarding what will become of Egypt, such as who will rule next, and how will the new rulers will affect the region’s stability . These are only a fraction of the questions that not only Egyptian people ask, but also many other people in different countries do.

Let’s see how this Egyptian coup affected crude oil price so far:

Crude oil Effect

In the following chart are the crude oil price (WTI and Brent spot) changes since 27 January, about the time the news pertaining the Egyptian uprising broke.

Crude oil price and the Egypt effect January February

The chart shows that in the first couple of days WTI crude oil price rose very precipitately, and afterwards, about the beginning of February the prices dropped. As of yesterday the price range is very similar to the oil price before the news had broke.

Brent spot also rose in the first couple of days but then fell more moderately than WTI, only to continue rising in the last few days. This movement, however, is similar to the upward trend Brent had even before the news from Egypt.

The two main aspects that could affect the energy market and consequentially might  raise crude oil price, which I have covered in the past, are:

  1. 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, there weren’t any news about the Canal to cause any alarm.
  1. 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 a worldwide shortage of oil. This scenario is plausible, but again it’s very premature to think it could happen.

If I would to speculate about the recent behavior of crude oil price (WTI), it seems that at the beginning, the market reacted to the news very sharply, mainly because of the uncertainty in the Middle East might rise as the region will heat up (remember that the turmoil in Egypt started after the coup in Tunisia). There weren’t any other reactions, however, up to now, that  included any spill over effects on other countries, and thus the energy market didn’t change its trend path from before the Egypt riots had begun.

In other words, it could be that energy investors were more concern about the effect this news might have on the region than the actual Egyptian coup and its direct effect on crude oil market. This might explain why, despite the ongoing turmoil in Egypt, the energy market didn’t react to it up to now.

Currently, crude oil price show moderate falls: the Nymex crude oil price, short term futures (March 2011 delivery) is traded at 85.41 USD / barrel, a 1.32 USD/b fall or 1.52%, as of 17.35 PM.

WTI spot is traded at 85.86 USD / barrel, a 0.87 USD/b fall as of 16.58 PM.

The Dated Brent spot crude oil is at 100.03 USD / barrel – a 1.49 USD/ barrel increase as of 17.45 PM.

The uncertainty in the Region

The stability in the Middle East is still in question: not only the future relations of Egypt with Israel, but also the effect this successful coup could have on other Muslim couturiers, e.g. in Yemen, president Salah announced he won’t seek reelection, however there was a rise among Yemen people calling him to step down, similar reactions are in Jordan and Syria.

The Muslim brotherhood, which is one of the fractions, related to the uprise against Mubarak in Egypt, might be included in the new government, and some news media already claim/speculate 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.

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