Brent oil futures, the global oil benchmark, have jumped by 8% in a fortnight to a three-month high of $108 a barrel. US futures are at a 14-month peak of $105, largely due to fears of supply disruption caused by the unrest in Egypt. The country is a net oil importer, but around 4% of global oil supplies pass through its Suez Canal each day. Demand for oil in the US has also beaten expectations in recent weeks.
What the commentators said
The canal is “an economic lifeline” for Egypt, said Firas Maksad of Global Policy Advisors. Tolls paid by the ships passing through bring in about $5bn a year, vital cash for Egypt as foreign-currency reserves have dwindled alarmingly. So neither the Islamists nor the military and its supporters have an interest in closing it. There has been no sign so far of any attempt to block it, and as Michael Rubin of Commentarymagazine.com pointed out, the canal survived the upheaval two years ago unscathed too.
Political upheaval aside, the backdrop for black gold looks far from bullish. Demand has ticked up in the US, but this is a result of the summer driving season, said Jonathan Barratt of Barratt’s Bulletin. There’s no sign of a long-term rise in oil demand. Indeed, on a global scale, the opposite applies. China’s appetite is dwindling – its first-half oil imports were 1.4% down year-on-year. HSBC has slashed growth forecasts for Asia. Europe is still in recession.
Meanwhile, supply from outside oil cartel Opec has surprised on the upside. US oil in storage hasn’t been this high in 30 years. In any case, said Capital Economics, Western countries have ample strategic oil reserves that would be released to offset disruptions in case turmoil spreads and Middle Eastern supplies are threatened. The upshot? Expect oil to drift back below $100.