Egypt and Energy Markets 1-30-2011

The recent events in Egypt have re-ignited the fear factor in the oil markets. According to Bloomberg, crude prices increased 4.3% due to the Egyptian unrest. Crude prices oil have been heading northward based on a growing demand for energy, especially in the Asian markets. Although Egypt barely produces any oil, consider the following:

Roughly 35% of the world’s oil exports come from Saudi Arabia, Kuwait and the Gulf Emirates. Like Egypt, these countries are led by elderly autocrats that fear unrest and crave stability. What happened in Tunisia, and is now happening in Egypt and Jordan, may not spread to other parts of the Arab world. It still has focused renewed attention on the fundamental instability in the “Oil Basket”.
Democratization in Egypt could provide an opening for more radical elements aligned with Iran or Syria
The Suez Canal and Pipeline transport 4.5% of the world’s crude oil production. It has not been affected yet, but its shutdown is a very real possibility.

The cold weather in the Eastern US and Europe has also had an impact. Liquified Natural Gas (LNG) that normally flows into the Northeast US to reduce gas pipeline capacity problems has been going to the higher-priced European market instead. The Northeast is also a heavy user of #2 heating oil, and prices have risen as a result of the extreme cold during January.