How the Egypt Crisis Can Impact the Oil Market

How the Egypt Crisis Can Impact the Oil Market

by | published January 31st, 2011

At some point around 2:30 p.m. Eastern this afternoon, I’ll be a guest on Fox Business to discuss the Egyptian political protests and the oil market.

The unfolding crisis has four impacts on oil.

Thought I would give you advance notice on what I will be saying…

Impact No. 1: Instability Can Cause Panic

First, while Egypt itself does not directly provide a great deal of oil to the international market, any instability in this region causes the traders to panic. (The hefty rises in oil prices on Friday attest to this fact.)

While prices are stabilizing today – after a quick round of profit-taking – they will begin experiencing upward pressure again (primarily for the reasons I will summarize below).

Keep your eyes on the Brent price in London, where the importance of what is happening on the streets of Cairo is more immediate. The price for crude is approaching the magic benchmark of $100 a barrel.

There are no indications that the unrest is likely to translate into a government takeover by radical groups. We are, of course, still quite early in the process, but Egypt remains a secular Islamic state, at least for the moment.

True, this is the birthplace of the Muslim Brotherhood some 60 years ago, the forerunner of radical Islam. However, these days, it is poorly organized, without effective leadership, and significantly weakened by government pressure over the years.

In any event, this is currently a popular uprising and bears little relationship to wider political issues – unless, of course, we assess its result to the broader region. The events unfolding, first in Tunisia and then in Egypt, have brought attention to the unstable hold governments throughout the region have on their nations.

Here is where the true problems may result.

Egypt, Turkey and Jordan are the leading secular Islamic states in the Middle East. But they have only moderate amounts of oil and gas. More disconcerting is the possibility of reactionary elements gaining control in places that have a more immediate impact on the flow of energy.

Impact No. 2: Western Producers and Drillers Could Suffer

Second, Egypt has been increasing its development offshore, especially of natural gas in the Nile Delta, the Gulf of Suez, and the deeper waters of the Mediterranean Sea.

Here, there are assets of major Western companies at stake – BP (NYSE:BP), Exxon Mobil Corp. (NYSE:XOM), Chevron Corp. (NYSE:CVX), Royal Dutch Shell (NYSE:RDS), Eni (NYSE:E), British Gas Group (OTC:BRGYY), Edison (OTC:EDIHF), and dozens of mid-sized companies.

In addition, there are substantial assets of leading drillers, including Transocean Ltd. (NYSE:RIG), Diamond Offshore Drilling Inc. (NYSE:DO), and Baker Hughes Inc. (NYSE:BHI).

What to watch here is the response to political pressures on the two dominant Egyptian state companies – the Egyptian General Petroleum Corp. (EGPC) and the Egyptian General Gas Holding (EGAS). These two control the dominant state position in all hydrocarbon projects in the country.

Impact No. 3: Eurozone Electricity Prices May Fluctuate

Third, developments there – should they lead to any interruption in deliveries – will have a more pronounced effect on the European gas market.

The discovery of large gas deposits over the past several years has catapulted Egypt into the fast track lane for liquefied natural gas (LNG) exports to the European Union.

Any problem on this front would change dynamics in LNG imports and provide instability in electricity prices on the continent.

Impact No. 4: Delivery Interruptions Bring in Serious Volatility

Finally – and, in my judgment, most significantly – while Egypt does not provide a great amount of the global oil and gas, it does control about 5% of its delivery.

Some 1.8 million barrels of oil move through the Suez Canal each day; another 1.1 million or so barrels pass along the Sumed pipeline from the Gulf of Suez to Alexandria and further export.

Any interruptions here would move the oil market into considerable volatility, requiring a rebalancing of contracts and a noticeable escalation in prices.

A rule of thumb to remember – each 1% decline in global supply availability without an equivalent decline in demand pushes average crude oil prices up $10 a barrel.

At minimum, therefore, that would translate into an almost overnight NYMEX price level of $140 a barrel and a Brent price pushing $150.

Currently, the only problems in the Suez Canal are a result of communications being subject to government cuts countrywide. There is no indication the oil flow is impeded at this point.

But this is a fluid situation, and the likelihood of supply cuts elsewhere in the region as the popular uprisings increase, are a genuine concern.


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  1. mike sondgeroth
    January 31st, 2011 at 14:08 | #1

    thanks for the imput!! what the heck up here in prudhoe bay where i work its the slowest i have seen myself in 17 winters working up here,companies cant seem to get permits for there projects ,like alpine cd-5 like point thompson projest , not sure whats going on over at point thompson i have heard rumors that cor of enginners and exxon and the state are having issues , pulling everything off the pads now shutting down , theres lots of us going to be looking for work soon thats for sure. then theres umiak gas field that was stopped for drilling last year year before. etc etc.

  2. DLE
    January 31st, 2011 at 14:36 | #2

    Personally I can’t wait until gas climbs to nearer $10 pg. That way there will be demand for a decent public transportation system in SoCal vs. people having to sit in their cars for an average 2 hour commute each way. In contradiction, I do think people who have to drive for a living such as delivery drivers (and alike) should and could be given a discount card of sorts for gas, but if you don’t drive for an actual living – too bad!

  3. charlie ward
    January 31st, 2011 at 14:53 | #3

    If what the previous gentleman (Mike Sondgeroth)suggests is true, then BPT may not be such a good buy at this time, as you have suggested, Professor Moors. As a ‘newbie’ I may be out of class here, yet I’d appreciate it if you or one of your staff might elucidate my misconception and misunderstanding.

    BTW, I am grateful for your alerts about media appearances. I just caught the one on FoxBus after diligently watching for new info. Thanks, Charlie Ward

  4. lena
    January 31st, 2011 at 17:00 | #4

    TOSHIBA can only be sold but not bought at least through my broker which is IB.

    January 31st, 2011 at 17:06 | #5


  6. N C Mosley
    January 31st, 2011 at 20:14 | #6

    How does this Egyptian unrest affect the price of natural gas? It is nowhere near the high price of a few years ago when oil was going up.

  7. January 31st, 2011 at 22:19 | #7

    I have produce oil & gas four over 65 years in this country and we are in four a big suprise prices will rise on every thing we comsume an there will be shortuge koyes.

  8. tim bouwsema
    January 31st, 2011 at 23:15 | #8

    would apriciate any comment you the may have on the Ukoy [russia]oilsituasion what can former stock holdersextect Thanks Tim

  9. Donald Skaggs
    January 31st, 2011 at 23:55 | #9

    What is the normal PE per share and would you expect it to continue
    to increase as the stocks price per share increases?

  10. Gerald Weis
    February 1st, 2011 at 00:30 | #10

    In discussing the effect of the Egypt riots on Western Producers and Drillers you don’t mention Apache’s activities in the Western Desert. What is the risk of disruption or takeover of Apache’s operations? These operations are a significant part of Apache’s earnings. Thank you, I look forward to a response since I have a number of shares of Apache stock.

    Gerald Weis

  11. Axolotl
    February 1st, 2011 at 08:11 | #11

    And what about the Suez Canal?

  12. Jay Bishop
    February 1st, 2011 at 08:53 | #12

    Nimbia offshore, UPWRF and ENGFF ?

  13. Jay Bishop
    February 1st, 2011 at 08:55 | #13

    What are your thoughts concerning offshore Nimbia?

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