Egypt is a Major Force Supporting Higher Oil Prices

February 3rd, 2011
in econ_news

suez Econintersect:  The Suez canal transports 5% of the world's oil every day and unrest in Egypt is a risk to the operation of the canal.  This is an uncertainty that adds a risk premium to the price of oil, which Thursday traded above $103 in London (Brent crude) and above $91 in New York (West Texas Intermediate crude).

Follow up:

But the unrest in Egypt is not the only force at work.  Higher demand is also pushing up oil prices.  Others are concerned that speculation has a role as well.  From Reuters:

Stronger oil demand from rebounding economies and concern over unrest in Arab countries have pushed crude prices above $100 a barrel, the International Energy Agency told the U.S. Congress on Thursday.

Claims that speculators were behind the 25 percent rise in the oil price since September are not valid, IEA Deputy Executive Director Richard Jones told the Senate Energy and Natural Resources Committee at a hearing on the oil market.

"Data on supply-and-demand fundamentals for the fourth quarter of 2010 that has recently become available points more towards a market tightening due to stronger-than-expected demand in key consumers and a concurrent drawdown of commercial oil stocks," Jones said.

"Reasons for this growth in demand include unseasonal weather patterns and better-than-expected global economic growth," he said.

Senator Ron Wyden of Oregon said he disagreed with IEA's narrow assessment of the cause of the rise in oil prices.

"I'm just concerned your approach gives short shrift to the possibility of speculation in the financial markets," Wyden told Jones at the Senate hearing.

And price increases may not be over.  U.S. Energy Information Administration head Richard Newell says there is a one in three chance that oil will be above $110 a barrel at the end of 2011. 

Sources:  Global Post, Live Oil Prices and Reuters

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