Brent soars to 5-month highs on Egypt turmoil
The global benchmark reached its highest level in five months against a backdrop of escalating violence in Egypt, which has investors concerned about the future supply of Mid-East oil. Egypt declared a state of emergency Wednesday after a security crackdown on Muslim Brotherhood supporters left more than 100 people dead. The death toll exceeded 500 Thursday after security forces clashed with pro-Morsi supporters.
Brent futures rose for a fifth consecutive session Thursday, gaining more than 0.8 percent. The global benchmark was trading at $111.11 a barrel, its highest level since early March. Brent is trading on a gain of more than 3.2 percent over the past five days. West Texas Intermediate ended the day flat after gaining almost 3 percent the past five days. The American benchmark was down more than 0.1 percent to $107.20 a barrel.
While not a major oil exporter, Egypt is a strategic player in global crude distribution. Home to some of the world’s most important oil checkpoints, Egypt’s Suez Canal serves as a distribution channel for Mid-East crude, where 3 million barrels of oil (7 percent of total sea-born oil) passes each day. However unlikely the prospect of the Suez Canal being shut down, the escalating violence has produced fears over how regional governments will react to the conflict..
Presently, no supply disruptions have been reported along the Suez distribution channel.
Crude prices are likely to continue higher over the mid-term as global supply shrinks. On Wednesday it was reported by the EIA crude inventories in the US declined 2.8 million barrels last week, which was more than expected. Oil production in Europe is expected to drop 500,000 barrels per day due to weak profit margins. Oil refiners in southern Iraq are also expected to cut production by up to 500,000 barrels per day in September, which will send prices higher amid diminishing supply.
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