Oil Prices: Egypt's Crisis Could Hurt Europe First

Oil tanker in Suez CanalSome crude oil prices brushed $100 a barrel Monday as fears escalated that the violence in Egypt would spread to other parts of the oil-producing Middle East. But so far, no reports have surfaced that the disturbances in Egypt have disrupted oil deliveries.

Brent crude oil surged to $99.97 a barrel on London's ICE futures exchange, up about 5% since the beginning of last week, when violence spread from Tunisia to Egypt. In U.S. trading, West Texas Intermediate shot up 1.7% on Monday, but was still somewhat cheaper than Brent crude, its European counterpart.

Julius Walker, a senior analyst at the International Energy Agency in Paris, says the organization has received no reports that oil shipments were being delayed, but the website of the agency that runs the Suez Canal has been shut down by the ban on Internet use in Egypt, so a precise reading isn't available.

"Nothing has been affected. It's just the worry of it," Walker says.

A Chokepoint for Europe-Bound Oil

Egypt is a small oil producer, and its output is almost exactly equal to what its own needs are. The concerns at the moment, however, are the Suez Canal and the SUMED pipeline that runs parallel to the canal.

Walker says the IEA reckons that 1.5 million barrels of oil a day pass through the canal and another 1.1 million barrels go through the SUMED. That's about 2.5% of world oil production.

Most of that oil goes to Europe because oil from such places as Saudi Arabia and Kuwait that goes to the U.S. is transported in so-called very large crude carriers capable of carrying 2 million to 3 million barrels of oil. Those massive tankers can't sail through the Suez Canal and instead go around the Horn of Africa.

Walker says if the Suez Canal were closed, it might add two weeks to the shipment times for oil reaching European refineries on the Mediterranean coast.

During the Suez crisis in the 1950s, the canal was closed by the Egyptians, who sank ships to block transit through the waterway. Crude oil shortages were widespread in Europe at the time.

Low Probability of Political Contagion

There seems little likelihood that will happen again. The major concern now is that the violence playing out in Egypt will catch fire in the rest of the Arab world. "The main risk is that of political instability spreading to Middle Eastern oil producers, such as Saudi Arabia," Goldman Sachs analysts said Monday in a research report. "Egypt's consumption and production are roughly balanced, creating little impact on oil supplies from the instability there. However, given the high level of affluence in the Gulf region, we see the probability of political contagion as relatively low."

Walker notes that oil prices were higher well before the crisis began in Tunisia earlier this month, moving from the $70- to $80-per-barrel range to around $90. U.S. gasoline prices are now at around $3.11 for a gallon of unleaded, up only two cents from two weeks ago.

Walker says the disconnect between Brent crude and West Texas Intermediate prices seems to have been caused by a big buildup of crude oil in the big Cushing, Okla., oil depot. That was caused by the arrival of vast amounts of crude from Canada, which pushed down prices in the U.S. to levels well below those in Europe. Still, if history has any lessons about oil supplies and prices, nothing can be taken for granted.

Increase your money and finance knowledge from home

Small Cap Investing

Learn now to invest in small companies the right way.

View Course »

Professional Vs Do it Yourself Investing

Should you get advice or DYI?

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Someone aught to NUKE the Dated Brent Spot (RUTHLESS EXXON BRITISH oil trading post)...

February 01 2011 at 8:08 AM Report abuse rate up rate down Reply

What we need is someone with guts enough to tell the idiots protesting against drilling in the United States to go to hell. It is estimated we have more oil here than all the middle east combined.We can't drill for it because the idiots in dc might offend someone but we still give egypt over 1 billion dollars a year.

February 01 2011 at 6:51 AM Report abuse rate up rate down Reply

Do you want the simple answer? Immigration!

February 01 2011 at 6:23 AM Report abuse -1 rate up rate down Reply

How much oil do we get from Egypt? Dosen't matter, there is a crisis in Egypt, and no other subject on our minds. Strike!!! Health and care seems to have been overcome. What else is there? Our politicians cannot handle out real probllems, so what easier way occupy our minds? Remember, we have REPORTERS there! AND, their safety is the utmost concern. We will get moment by moment reports, and these reports will have the most dire consequences, spelled out in minute detail. And, of course, the effect on oil prices. Our politicians will latch on to every detail, and our "Citizen of the world" will make another speech!
I can't wait!!!

February 01 2011 at 6:14 AM Report abuse rate up rate down Reply

Any excuse to make the price go up.

February 01 2011 at 6:06 AM Report abuse +1 rate up rate down Reply
1 reply to Joe's comment

Hey, Joe!
I wrote my comment before I read yours.
You hit the nail on the head!
i could have repeated your comment, and saved a lot of words. I must be acting like Obama!

February 01 2011 at 6:18 AM Report abuse rate up rate down Reply

our leaders have a take in oil and with that,they will not ever do anything to stop the high cost. people still losing jobs,companys going under,banks closing,
and cost of oil and gas goes up each day. just a sad group of leaders we have.

February 01 2011 at 5:52 AM Report abuse +5 rate up rate down Reply

If a rat piss on some cotton will that cause the price of oil to go up? It seems everything else does.

February 01 2011 at 5:32 AM Report abuse +3 rate up rate down Reply

why would congress look to help anyone here! the majority of congress members have huge investments in oil. there not gonna do s----. Its like good ole Ted who passed away and, he spent years ranting about the war in Iraq, and high fuel prices, yet millions of his 300 million dollar net wealth, was invested in haliburton, lockeed martin war companies, and big oil companies.

February 01 2011 at 5:30 AM Report abuse +3 rate up rate down Reply

yep same old B.S! cold winters , warm winters, hurricanes, the value of the american dollar , and how much we borrowed. Everytime some A-hole analyst gets his pockets filled, then thats why oil is going up! We just got screwed for the last ten years by lieing, thieving, analysts who openly lied about future supplies of oil. and last year we found out there is an abundance of it. In 1975 we had cars that got 22 miles to the gallon. Since then we have put satelites that take photos from mars, but we won,t produce cars that get better gas mileage. we have the technology to get a 100 miles per gallon , but we keep produceing cars with an avg 0f 28. here go the home heating bills, an extra 100 per week in gas, more for costs of goods an trucking. And the economy continues to tank. While exon boasts about another forty two percent earnings profit for the quarter, with less gas production. do the math we are getting F-----

February 01 2011 at 5:20 AM Report abuse +6 rate up rate down Reply
1 reply to rich's comment

Wow, I remember 1975 well, and don't remember any cars getting 22 mpg unless the ingnition was off, and it was rolling down a mountain ? So what cars did you drive that got that much mpg?

February 01 2011 at 6:42 AM Report abuse rate up rate down Reply

wonder how high oil will go if some one farts over there? As far as those gettin rich from speculation, lynch mobs should bring down prices.

February 01 2011 at 4:08 AM Report abuse +2 rate up rate down Reply