Oil boosted as Egypt, Libya situations escalate

Making It through the Weekend

Oil prices may retreat as the risks that we focused on last week have lessened a bit. The Atlantic looks void of tropical storms and despite tensions in Egypt, oil and shipments continue to move. Oh yes there is a disturbance weather-wise off the coast of Africa but the market is not worried about that yet. Brent crude continues to gain on WTI as it is assuming the brunt of the risk premium as the violence in Egypt continues.   

CBS News reports that Egyptian security officials said Monday that suspected militants had ambushed two police minibuses in northern Sinai, firing rocket-propelled grenades and killing 24 policemen. The officials said the Monday morning attack took place as the two vehicles were driving through a village near the border town of Rafah in the volatile Sinai Peninsula. They said the attack also left three policemen wounded. The officials spoke on condition of anonymity as they were not authorized to talk to the media.

There are 4.5 million barrels a day of oil that flows through the SUMED pipeline and the Suez canal not to mention about 7% of all seaborne traded oil and 13% of liquefied natural gas. Sinai, a strategic region that borders the Gaza Strip and Israel, has been witnessing almost daily attacks by suspected militants since the July 3 ouster of Islamist President Mohammed Morsi in a military coup.

The Telegraph Reports "The rest of the country's oil industry remains relatively unaffected. Despite the worrying headlines, most oil and gas production takes place offshore and is operating relatively undisturbed.  The largest player is BP, which produces about 15% of the country's oil and 30% of its gas. "Operations and production are unaffected," a BP spokesman told Reuters after more than 500 people were killed last week in a security crackdown. "We are monitoring the security situation in the areas where we have offices. All our people are safe and accounted for."

Royal Dutch Shell is also a major producer in the country. "To ensure the safety and security of our staff, Shell offices in Egypt are closed for business today and into the weekend, and business travel into the country has been restricted. We will continue to monitor the situation in Egypt," a Shell spokesman said on Friday.  However, perhaps the most exposed company to the country is BG Group. Egypt was the energy company's largest producing country in 2012, delivering 20% of the company's total production.  BG's production is also unaffected so far, but the group withdrew 100 expatriate staff and dependents last month. About half of the gas that Egypt produces is exported, with the rest servicing Egypt's domestic market. This is one reason why sector watchers are hopeful that disruption will be minimal. Whoever holds political power will not want the lights to go off.

The Egyptian uncertainty will continue to boost the oil price, but the situation in neighboring Libya is also a concern. Workers at ports in Libya have been on strike for a number of weeks, with the protests resulting in a drop in Libya's oil exports.  "If the blockade of these oil terminals continues, the state will be obliged to use its power, and all the forces at its disposal, including the army," the Libyan prime minister, Ali Zeidan, said on Friday. 

"The situation in Libya is also threatening to escalate: The government appears to be running out of patience in view of the revenue losses due to strikes," Commerzbank said last week. "After striking workers at the export terminals had announced that they planned to sell the oil themselves, the government threatened to deploy the army to prevent this from happening." Natural Gas is trying to continue its bottom formation with support from a return to summer predicted this week in the Midwest.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


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