Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
The Incredibly Bullish Set-Up for Gold - 20th Oct 18
Here Comes the Stock Market Retest - 20th Oct 18
Waterproof Camera - Olympus Tough TG-5 Setup and First Use - 20th Oct 18
Israel’s 50-Year Time Bomb, Pushing Palestinians to the Edge - 19th Oct 18
Bitcoin Trend Analysis 2018 - 19th Oct 18
History's Worst Stock Market Crash and the Greatest Investing Lesson! - 19th Oct 18
More Signs of a Stocks Bull Market Top and Start of a Bear Market in 2019 - 19th Oct 18
Stock Market Detailed Map Of Expected Price Movement Before The Breakout - 18th Oct 18
Determining the Outlook for Gold Mining Stock - 18th Oct 18
Investor Alert: Is the Trump Agenda in Peril? - 18th Oct 18
Stock Market is Making a Sharp Rally After a Sharp Drop. What’s Next? - 18th Oct 18
Global Warming (Assuming You Believe In It) Does Not Affect Gold - 18th Oct 18
Best Waterproof Compact Camera Olympus Tough TG-5 Review - Unboxing - 18th Oct 18
Silver's Time Is Coming - 17th Oct 18
Stock Market Volatility Breeds Contempt - 17th Oct 18
Gold 7-Year Bear Market Phase Is Over - 17th Oct 18
Gold - A Golden Escape - 17th Oct 18
Tec Stocks Sector Set For A Rebound? - 16th Oct 18
Real Estate Transactions are Becoming Seamless with Blockchain-Powered Data Sets - 16th Oct 18
Important Elements of a Viral Landing Page - 16th Oct 18
Stephen Leeb Predicts 3-Digit Silver and 5 Digit Gold?! - 16th Oct 18
BREXIT, Italy’s Deficit, The EU Summit And Fomcs Minutes In Focus - 16th Oct 18
Is this the Start of a Bear Market for Stocks? - 16th Oct 18
Chinese Economic Prospects Amid US Trade Wars - 16th Oct 18
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

Egypt Protests Could Lead to $150 Crude Oil

Commodities / Crude Oil Feb 02, 2011 - 07:15 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleKent Moors writes: Egypt is hardly the most influential player in the global energy market. Crude oil production has been in decline there for nearly two decades. Since hitting its peak level of 941,000 barrels per day (bpd) in 1993, producion has dropped steadily – falling to 873,000 bpd in 1997, 696,000 bpd in 2005, and finally to about 685,000 bpd currently.


Of course, while Egypt may not produce very much of the world's oil and gas, it does control about 5% of the world's oil and gas delivery.

For that reason, the Egypt protests have had a very pronounced effect on the global energy market. The price of oil futures traded on the New York Mercantile Exchange (NYMEX) remain above $90 a barrel, while London Brent Crude has traded above $100 a barrel for two days.

Aftershock No. 1: Panic Over Instability
First, while Egypt itself does not directly provide a great deal of oil to the international market, any instability in this region causes oil traders to panic. (The hefty rises in oil prices on Friday attest to this fact.)

Prices are now stabilizing – after a quick round of profit-taking – and will soon begin experiencing upward pressure again (primarily for the reasons I will summarize below).

Keep your eyes on the Brent crude price in London, where the importance of what is happening on the streets of Cairo is more immediate. The price of Brent crude has topped the magic benchmark of $100 a barrel for two days running.

There are no indications that the unrest is likely to translate into a government takeover by radical groups. We are, of course, still quite early in the process, but Egypt remains a secular Islamic state, at least for the moment.

True, this is the birthplace of the Muslim Brotherhood some 60 years ago, the forerunner of radical Islam. However, these days, it is poorly organized, without effective leadership, and significantly weakened by government pressure over the years.

In any event, this is currently a popular uprising and bears little relationship to wider political issues – unless, of course, we assess its result to the broader region. The events unfolding, first in Tunisia and then in Egypt, have brought attention to the unstable hold governments throughout the region have on their nations.

Here is where the true problems may result.

Egypt, Turkey, and Jordan are the leading secular Islamic states in the Middle East. But they have only moderate amounts of oil and gas. More disconcerting is the possibility of reactionary elements gaining control in places that have a more immediate impact on the flow of energy.

Aftershock No. 2: Western Producers and Drillers Could Suffer
Secondly, Egypt has been increasing its development offshore, especially of natural gas in the Nile Delta, the Gulf of Suez, and the deeper waters of the Mediterranean Sea.

Here, there are assets of major Western companies at stake – BP PLC (NYSE ADR: BP), Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), Royal Dutch Shell PLC (NYSE ADR: RDS.A), Eni SpA (NYSE ADR: E), British Gas Group PLC (OTC ADR: BRGYY), Edison SpA Milano (OTC ADR: EDIHF), and dozens of mid-sized companies.

In addition, there are substantial assets of leading drillers, including Transocean Ltd. (NYSE:RIG), Diamond Offshore Drilling Inc. (NYSE:DO), and Baker Hughes Inc. (NYSE:BHI).

What to watch here is the response to political pressures on the two dominant Egyptian state companies – the Egyptian General Petroleum Corp. (EGPC) and the Egyptian General Gas Holding (EGAS). These two control the dominant state position in all hydrocarbon projects in the country.

Aftershock No. 3: Eurozone Electricity Prices May Fluctuate
Developments there – should they lead to any interruption in deliveries – will have a more pronounced effect on the European gas market.

The discovery of large gas deposits over the past several years has catapulted Egypt into the fast track lane for liquefied natural gas (LNG) exports to the European Union.

Any problem on this front would change dynamics in LNG imports and provide instability in electricity prices on the continent.

Aftershock No. 4: Delivery Interruptions Bring in Serious Volatility
Finally – and, in my judgment, most significantly – while Egypt does not provide a great amount of the global oil and gas, it does control about 5% of its delivery.

Some 1.8 million barrels of oil move through the Suez Canal each day; another 1.1 million or so barrels pass along the Sumed pipeline from the Gulf of Suez to Alexandria and further export.

Any interruptions here would move the oil market into considerable volatility, requiring a rebalancing of contracts and a noticeable escalation in prices.

Here's the rule of thumb to remember: Each 1% decline in global supply availability without an equivalent decline in demand pushes average crude oil prices up $10 a barrel.

At minimum, therefore, that would translate into an almost overnight price level of $140 a barrel on the NYMEX and a Brent crude price of nearly $150 a barrel.

Currently, the only problems in the Suez Canal are a result of communications being subject to government cuts countrywide. There is no indication that the oil flow is impeded at this point.

But this is a fluid situation, and the likelihood of supply cuts elsewhere in the region as the popular uprisings increase, are a genuine concern.

[Editor's Note: Dr. Kent Moors, a regular contributor to Money Morning, is the editor of The Oil & Energy Investor, a newsletter for individual investors, as well as the Energy Advantage advisory service In a career that spans 31 years, Dr. Moors has been consulting the energy industry's biggest players, including six of the world's Top 10 oil companies and the leading natural gas producers throughout Russia, the Caspian Basin, the Persian Gulf and North Africa. His experiences - as well as his unrivaled industry access - are without peer. For access to Dr. Moors' top stock recommendations for the publicly traded companies that are poised to dominate these new clean-energy markets, get his Energy Advantage advisory service by clicking here.]

Source : http://moneymorning.com/2011/02/02/egypt-protests-could-lead-to-150-oil/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules