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03 March 2024

Oil hits $101 on Egypt crisis fears

The market is pricing in an "Egypt risk premium", according to analysts at BMO. (AP)


Oil prices smashed through $100 a barrel Monday for the first time since the 2008 economic crisis, as traders worried that unrest in Egypt could disrupt oil flows through the Suez Canal.

Oil prices surged to $101 a barrel for London's main Brent North Sea crude contract, as protesters gathered for a seventh straight day amid threats of a general strike.

Egypt is not a major oil producer, but is home to the vitally important Suez Canal, which carries around 2.4 million barrels of oil a day -- roughly equivalent to the daily output of Iraq or Brazil.

Egyptian authorities insist the canal is still working at full capacity, but unrest has caused major shipping giants such as AP Moller-Maersk to halt operations in the country.

The threat of delays have prompted some normally reticent oil industry honchos to sound the alarm.

Opec secretary-general Abdalla Salem El-Badri warned "there could be a real shortage" of crude oil passing through Suez.

While stressing that the market was still well supplied, El-Badri said "if we see a real shortage, we will need to act."

The Organization of Petroleum Exporting Countries pumps about 40 percent of the world's oil, with the bulk coming from member Saudi Arabia.

The oil cartel chief said there was no need for an emergency production meeting ahead of the next scheduled gathering in Vienna in June.

According to figures from Barclays Capital around two thirds of energy that flows through the Suez Canal heads northward toward the Mediterranean.

That dependence was enough to send European oil prices soaring above those in the United States.

Prices on London's InterContinental exchange ended the day up ê1.59 per barrel after touching ê101.73 during the day, the highest level since October 2008.

New York's main contract, WTI light sweet crude for March delivery, was up ê2.85 to ê92.19.

The market is pricing in an "Egypt risk premium", according to analysts at BMO.

But they said it was difficult to see supplies at crushingly low levels given Opec's promise and large stockpiles at key US facilities.

"Opec has already said that they will 'add barrels' if there is a supply disruption, and (the US central plains depot) Cushing has ample inventories, so it is hard to imagine a sustained global supply crunch."

But SEB Commodity Research analyst Filip Petersson said the threats to the canal and the Suez-Mediterranean oil pipeline (SUMED) warranted the higher prices.

"In the light of uncertainty regarding the Suez Channel, the SUMED pipeline and a spread of political unrest in the region, we consider the risk premium justified," he told AFP.

A sea of protesters flooded downtown Cairo on Monday, brushing aside concessions by President Hosni Mubarak and vowing to topple his regime with strikes and million-strong marches in the capital and Alexandria.

Protesters in Cairo vowed they would only be satisfied when Mubarak quits, and promised to step up their efforts to bring down his creaking regime, after a week of revolt in which at least 125 people have been killed.

Emma Pinnock, an analyst at UK energy consultancy Inenco, predicted that oil could soon strike ê110, in part thanks to unrest in Egypt.

"Oil prices are set to move rapidly towards $110 a barrel as a weak dollar, greater global demand and tighter supplies create similar conditions to when prices reached a record high of $147 in 2008," she said.

"Prices rose by more than 15 per cent during 2010 and $110 a barrel is looking more likely as we can see similar market conditions to when oil reached a record high in 2008."

She added: "The situation in Egypt has caused the market to worry about the flow of oil in the Middle East -- and obviously decisions made by Opec in the next few months will also have a huge impact on prices."