Friday, January 28, 2011

Oil: Why Cairo Counts in the Crude Market

Last I saw the futures were up $3.70 at $89.34.
From MarketWatch:
Cairo contagion 
Commentary: Riots expose regional fragility that worries oil traders

While the world is glued to live coverage of running street battles in Cairo, oil prices are nervously edging ever higher. There are good reasons for that.

Egypt is not a major oil producer. It pumps less than a 700,000 barrels a day, and while that number is expected to grow as exploration pushes further offshore, the political turmoil in Cairo poses little threat to global supplies. That supports the notion that the 4% jump Friday in the price of crude oil is driven more by speculation than fundamental market concerns.

But there are other concerns tied closely to the transportation of oil.

The Suez-Mediterranean pipeline system runs along Egypt’s Suez Canal, linking the Gulf of Suez to Sidi Kerir on the Mediterranean. The line can carry up to 2.5 million barrels of oil a day, most if it bound from the Persian Gulf to Europe’s refineries.

Like the narrow Hormuz Strait that the world’s supertankers sail through when leaving the Persian Gulf, the Sumed pipeline is one of those transit choke points oil traders like to fret over. The heightened threat of sabotage to such a key line really makes them fret.
The Sumed line is fed by tankers arriving from the main oil export terminals of Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates. These four, along with Egypt, also own the line through a partnership called the Arab Petroleum Pipelines Co....MORE