Developments this week
Prices have been moving this week in response to the perceived threat to oil supplies stemming from the anti-government demonstrations in Egypt. On Monday prices completed the nearly $8 a barrel surge that began on Friday to trade at $92.84 a barrel in NY. On Tuesday prices fell a bit as oil shipments through the Suez Canal did seem to be affected by the upheavals, but edged higher to close at $90.86 on Wednesday as the demonstrations in Cairo turned violent.
Stockpiles at Cushing, Okla., which are at an all-time high of 38.3 million barrels, are keeping NY futures prices well below those in London. Last week the price difference widened to a record $11.75 a barrel and closed at $11.48 on Wednesday with Brent hitting a new 28-month high of $102.43 a barrel. Brent crude is used to price two thirds of the world’s oil supply.
The turmoil in Egypt overshadowed the weekly US stocks report which showed crude inventories increasing by 2.6 million barrels. Gasoline stocks increased by 6 million barrels due to reduced driving during the harsh winter weather. Widespread snowfalls this week are expected to reduce gasoline consumption and increase heating oil consumption for the next week or two.
With no end to the Egyptian violence in sight, political unrest spreading to Jordan and Yemen, and London oil above $100 a barrel, concerns are being expressed in many quarters, including The Wall Street Journal, as to whether the current oil prices will harm the economic recovery. So far there has been no disruption of traffic through the Suez Canal and the Egyptian army has placed guards along the parallel SUMED oil pipeline, but the situation seems to be deteriorating.
Organizations ranging from the IEA and IMF to OPEC have expressed concern over the damage to economic growth that could result from the political unrest. Egypt’s economy is nearly paralyzed, with banks and ports closed, food deliveries slowed, and foreigners streaming out of the country. Panic buying has cleared the shelves of retail stores. Fuel deliveries are not arriving at some gas stations. If the situation is not stabilized in the next week or so, the lack of money, food, and gasoline is likely to set off a new round of troubles.
Risks to energy supplies
The Suez Canal carries about 1.8 million b/d of crude and refined products in both directions. In 2009, the SUMED pipeline carried about 1.1 million b/d, but has considerable spare capacity, should the canal be closed as it carried 2.3 million b/d in 2007.
Egypt has large natural gas reserves and exported 646 billion cu. ft. in 2009. Seventy percent of this was in the form of LNG and the rest via pipeline to Israel, Lebanon, Jordan, and Syria. So far the gas pipeline has not been interrupted. Egypt produces about 685,000 b/d of oil, but is now consuming about 710,000 b/d.
Jordan and Egypt continue to exchange electricity via a cable under the Red Sea. Sixty percent of Jordan’s electricity is generated with natural gas mostly from Egypt. Concern is also increasing about the stability of Algeria and Libya, which together supply 15 percent of the EU’s natural gas consumption and produce about 2.8 million b/d of crude.