Egypt's Effect on Oil Prices

Brian Hicks

Written By Brian Hicks

Posted February 3, 2011

Anything can happen in Egypt at this point.

The unforeseen revolution has caused heads to spin around the globe. Few experts expected the events of the last couple weeks.

And even fewer predicted Egypt’s government would allow a revolution of this magnitude to continue.

The ongoing conflict between supporters of President Mubarak and protestors against his regime has caused continued unease in the surrounding region.

Egypt is not a major oil exporter, but oil markets fear the unrest will spread to major oil-producing states.

Egypt’s location and control over the Suez Canal and SUMED Pipeline threaten the Middle East’s oil supply routes to European markets.

With the mere chance of disruption to the canal or pipeline operations, oil markets have reacted by driving the price of oil up.

The Suez Canal only sees 1.8 million barrels a day—just 2% of the world’s oil supply.

Only 2% of the world’s oil… and still the price increased.

Brent crude oil prices have risen for the fifth day in row, trading at $103.37 today, breaking $100 per barrel for the first time in two years and greatly surpassing the average price in recent years of $80 per barrel.

Most feel the increase is an overreaction by traders with the Gulf area unaffected by such conflict.

But traders do have some legitimate reasons for concern.

After all, a revolution of Egypt’s kind began in the less familiar state of Tsunia. Tsunia’s success spurred the people of Egypt, and their continued success and world (most notably, U.S) support could very well cause other authoritarian states to revolt.

The possibility of a domino effect is not a far reach.

Traders have a right to be worried with the Middle East producing 20 millions barrels a day, nearly a quarter of the world’s oil. Popular unrest in these nations could have massive affects on the world’s supply.

Egypt may not be a major player in the world’s oil supply, but we as traders have accepted its role in the Middle East’s stage, and its very realistic potential for increasing the price of oil.

Until next time,

–Kaitlin Walter

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