The price of crude oil was trading above $102 a barrel Wednesday --
highest level in over a year — as embattled Egyptian President
Mohammed Morsi vowed not to yield to demands of millions of protesters
that he resign immediately.
The price of crude oil hit $102 a barrel, up 2.4% for the day. The
benchmark crude oil contract for August delivery traded on the New
York Mercantile Exchange gained $1.61 to close at $99.60 a barrel
Tuesday.
The political crisis in Egypt is not only causing heightened
uncertainty in markets, but it is also raising fears that oil prices
could spike if the crisis leads to a supply disruption if the
all-important Suez Canal suffers a blockage or bottleneck, says Don
Rissmiller, an economist at Strategas Research Partners.
"It is certainly fair to put the recent events in Egypt in the 'highly
uncertain' category," Rissmiller told clients in an early-morning
research note Wednesday.
While direct global economic impact of these events is not necessarily
large, "the secondary effects on energy markets and other countries in
the region is worth watching given the location of the Suez canal,"
Rissmiller adds.
So far, he adds, market impact looks relatively muted, in part because
the "Arab Spring" story is not as surprising as it was several years
ago. Broad political upheaval and street demonstrations in the summer
of 2011, dubbed the "Arab Spring," sparked market angst back then.
The stock market could start to suffer if a barrel of oil climbs above
$105 per barrel, warns Andrew Busch, editor and publisher of the Busch
Update newsletter.
"Oil spiking above $105 is problematic," Busch says, adding at those
elevated levels it starts to act as a tax on consumers and "hurt their
spending" on goods and services. Consumer spending accounts for
roughly 70% of economic activity.
The potential combination of rising oil prices and rising interest
rates simultaneously would be a further drag on economic growth. Crude
oil supplies in the U.S. fell last week, the government said
Wednesday. Supplies declined by 10.3 million barrels, or 2.6%, to
383.8 million barrels. That's just 0.2% above year-ago levels, the
Energy Department's Energy Information Administration said.
Scott Anderson, chief economist at Bank of the West, says the economy
can withstand a move above $100 a barrel, assuming it is above that
level for a short time. And, more important, any oil disruption would
cause an economic drain only if it translated into higher costs at the
gas pumps for U.S. consumers.
Anderson says that "$100 a barrel oil would be an unwelcome outcome
for U.S. consumers if we stayed above that level for awhile."
"We need to have had follow through with gas prices to cause major
problems. Gas prices have been better behaved then oil prices,"
Anderson adds.
Egypt's military has drawn up a plan to suspend the Islamist-backed
constitution, dissolve the Islamist-dominated legislature and set up
an interim administration headed by the country's chief justice if
Morsi fails to reach a solution with his opponents by the end of a
Wednesday deadline, Egypt's state news agency reported.
Morsi has rejected the ultimatum, and clashes between his supporters
and opponents have steadily intensified. Well over a dozen people were
killed in a single incident of fighting outside Cairo University on
Tuesday night.
Egypt is not an oil producer but its control of the Suez canal, one of
the world's busiest shipping lanes which links the Mediterranean with
the Red Sea, gives it a crucial role in maintaining global energy
supplies.
Around 2.5 million barrels of crude oil pass through the Suez Canal or
the SUMED pipeline each day, according to Capital Economics.
Despite the recent instability in Egypt, Julian Jessop, an analyst at
Capital Economics, says he is sticking with his call that oil prices
will finish 2013 below $100 a barrel.
His market call is based on his belief that global demand will remain
sluggish due to a weak global economy, oil supplies will remain ample,
and Middle East worries will fade once again.
Even if oil supplies from the region were threatened due to
Egypt-related causes, Jessop stresses that "any fall-out for global
oil markets to be more than offset by releases from the vast strategic
reserves held by the U.S. and its allies."
0 comments:
Post a Comment