Egyptian Summer Means Costly Oil
Egyptian Summer Means Costly Oil
15/08/2013 - 10:26pm
Oil prices rose on 15 August, with Brent striking a four-month high point on concerns that turmoil in Egypt, which is not an oil exporter but it’s a key conduit of oil from the Arabian Gulf-Red Sea into the Mediterranean, could disrupt supplies.
Brent North Sea crude for delivery in September reached $111.53 -- the highest point since the start of April. New York's main contract, West Texas Intermediate for September, climbed to $107.51 a barrel.
“We have better prospects for the world economy and some supply problems, supply disruptions and on top of that if you put the turmoil in Egypt you have all the ingredients to explain 111-dollar-oil-per barrel for Brent,” Leo Drollas, Director and Chief Economist for the Centre of Global Energy Studies (CGES) in London, told New Europe by phone on 15 August.
About five million barrels a day go through Egypt. Around 3.9 million barrels of crude and products pass through the Suez Canal daily and then there is the Suez-Mediterranean (Sumed) Pipeline, which goes from Ain Sukhna to Sidi Kerir and takes another 1.7 million barrels per day of crude.
Instead of Egyptian Spring, it seems we have an Egyptian Summer. “We have an Egyptian nightmare, sadly, and with no prospects of getting any better,” Drollas said. He added, however, that closing the canal requires sinking a ship in the canal itself, which is a difficult and unlikely operation.
“You have to have explosives and you have to get on the vessels as they wait in the middle part of the canal. And the Sumed pipeline we presume that is guarded, as is the canal, by the Egyptian military because they are vital national assets,” the CGES director said, reminding that Egypt earns a lot of foreign exchange from the canal and the pipeline.
Drollas said it’s unusual that the oil price is that high. “To get to $111 was unexpected because stockcover has been not exactly high, but it’s been higher than it has been before. But there have been problems with supply just recently – with Libya, whose production has gone back down to below one million barrels a day because of unrest and problems and Iraqi output is disappointing,” he said.
He added that Iraqi output in September will decline for maintenance reasons. Iraq is reportedly still undecided whether to carry out full maintenance on its Basra oil export terminals in September, according to Reuters.
Investors as well as European refiners are closely eyeing the maintenance at the major Iraqi terminal after plans emerged at the end of July that exports could be cut by 400,000-500,000 barrels per day.
Moreover, South Sudan still cannot agree with Sudan to open the taps again, sending oil through Sudan to the Red Sea, Drollas told New Europe.
“We have supply issues and then on the demand side we have better economic prospects in the global economy with the eurozone finally breaking into positive territory and the US economy proceeding,” Drollas said. He also noted that Japan is in positive territory although recently the industrial production slowed a bit.
Meanwhile, the market is worried about Egypt and generally is worried about Iraq as well as Libya but not Iran at the moment. Tehran has been vocal about the Egyptian situation, exacerbating the situation but, at the same time, new Iranian President Hassan Rouhani seems more willing to compromise with the West on the nuclear issue. “There’s the upside and then there’s the downside on prices and they both cancel each other out so Iran is not at the moment the key concern of the market,” Drollas said.
Russia and all oil exporters are benefiting from the high oil prices. However the biggest beneficiary is Saudi Arabia because it needs as a minimum $87 per barrel, according to CGES estimates, and the OPEC basket is at $108-109 per barrel. “They [OPEC] keep making noises. They say, ‘We’re concerned’. But they don’t do anything about it and it’s the Saudis who control OPEC and the Saudis have this need. But if the price were to get up to $115-120, then the Saudis would actually put more oil onto the market. They have already. Their production has gone above 10 million, we think in July. So the Saudis have boosted production some of the highest levels since the 1980s,” Drollas concluded. europe on line
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