Oil climbs over $111 as Egypt unrest stokes supply fears

Reuters , Thursday 15 Aug 2013

Brent oil prices reach four-month high on Thursday on fears violence in Egypt could affect Suez Canal or spread in Middle East, disrupting supplies

Brent oil prices climbed above $111 per barrel to a four-month high on Thursday on fears violence in Egypt could affect the Suez Canal or spread in the Middle East, where supplies are already disrupted.

Egypt's government declared a state of emergency on Wednesday following deadly clashes between riot police and supporters of ousted President Mohamed Morsi. 

Egypt is not a major producer of crude oil, but investors feared that unrest could choke major supply routes such as the Suez Canal or spill over into oil-exporting neighbours.

"Disruptions at the Suez Canal are unlikely, but markets never move on what's likely. They move on fear. If people are fearful about supply, they buy even if the market is fundamentally well supplied," Michael Hewson, an analyst at CMC Markets, said.

"I think Brent has the potential to go as high as $113 to $114 but not much higher," he added.

Front-month September Brent, which expires on Thursday, jumped by over a dollar to reach $111.29 at 0821 GMT, after earlier reaching $111.41, the highest since April 2. U.S. oil rose 69 cents to $107.54.

The Suez Canal and Egyptian ports were operating normally despite the unrest gripping the country, shipping sources said on Wednesday.

But a Muslim Brotherhood statement vowing to bring down "Egypt's military coup" suggested that the standoff was unlikely to be resolved soon.

"Egypt may not be a major oil producer, but the Suez Canal is an important gateway, not just for oil flows but also for commodities. If there is any disruption or if the violence results in the shutting down of the canal, the impact will be quite severe," said Carl Larry, president of Houston-based consultancy Oil Outlook and Opinions.

In Libya, the deputy oil minister said output had fallen to 600,000 barrels a day due to field problems. The Ras Lanuf terminal remained shut after the state-run oil company had said it could not guarantee crude deliveries in September because of labour unrest at export terminals.

In Iraq, maintenance at its southern oil export hub is expected to slash supplies by 500,000 barrels per day in September.

"If the demand outlook is positive, then obviously any threat to supply or actual disruptions are going to give oil prices a big upside," Larry said, adding that recent economic data had increased the prospects for stronger oil demand in the United States, China and Europe.

Data on Wednesday showed the economies of Germany and France grew more quickly than expected in the second quarter, pulling the euro zone out of an 18-month recession.

U.S. crude inventories fell 2.8 million barrels, with stocks at Cushing, Oklahoma dropping for a sixth straight week to hit their lowest level since March, 2012.

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