The political turmoil in the Middle East has pushed oil prices over $101 a barrel, its highest level in over two years and an important psychological marker for the market.
The immediate worry on the minds of many investors is that major political unrest in Egypt could result in the closure of the Suez Canal and the 200 mile Sumed pipeline – an important link between the Red Sea and the Mediterranean Sea. About 5% of the world’s sea-borne crude oil travels through this canal.
However, data from the U.S. Department of Energy shows the Suez Canal and the Sumed pipeline carried 2.1 million barrels per day (mbpd) in 2009, well below its total capacity. Closure of these conduits, currently under control of the military, would cause a disruption, but not a complete halt, to regional oil flows.
The market is also concerned that political uprisings in Egypt, Tunisia, Algeria and Yemen could intensify instability amongst some of the more significant oil exporters in the region, such as Saudi Arabia.
Although analysts clearly see a “fear factor in the market,” the International Energy Agency (IEA) points to “fundamental differences from the situation today and the situation in July 2008,” when oil reached an all-time high of $146 a barrel.
Global oil stocks are also nearing 10 year highs, the agency says, and would be sufficient to cover approximately 61 days of forward oil demand. Spare tanker capacity is high enough now to deal with such potential disruptions for now. Read more…