Energy Commodities Price Watch: Egypt Tensions Boost Brent

on Aug 15, 2013
Listen, Thursday, August 15th: West Texas Intermediate (WTI) rose for a fifth day on Thursday, while the Brent price jumped above $111 per barrel with investors fearing that escalating tension in Egypt could affect supplies via the Suez Canal or spread to oil-producing countries in the Middle East. The natural gas price declined ahead of a weekly storage report.

**Escalating Tension in Egypt Lifts Brent Price**
Brent futures for September delivery, which expire today, added $1.33 to $111.53 a barrel on the ICE Futures Europe exchange before trading at $110.91 as of 13:08 BST. The Brent price jumped after the government in Egypt declared a state of emergency on Wednesday.
“Headlines of instability in Egypt, risks of spill-over to other already-unstable countries in the region and fears of a blockage in the Suez Canal, however unlikely, could lend themselves to creating fear in the oil market,” noted Amrita Sen, chief oil market strategist at Energy Aspects Ltd, as quoted by Bloomberg. While Egypt itself is not a major energy producer, the country controls the Suez Canal used by tankers carrying oil from the Middle East.

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Reuters quoted Michael Hewson, an analyst at CMC Markets, as explaining that although disruptions at the Suez Canal were unlikely, “markets never move on what’s likely”.
“They move on fear,” Hewson said. “If people are fearful about supply, they buy even if the market is fundamentally well supplied.” Reuters quoted Hewson as forecasting that the Brent oil price might surge “as high as $113 to $114 but not much higher”.

**WTI Price Surges**
WTI futures for settlement in September added $1.02 on the NYMEX to trade at $107.87. The WTI price also benefitted from the weekly report by the US Energy Information Administration (EIA) which showed that US crude inventories declined to 360.5 million in the week ended August 9. Stocks in Cushing, Oklahoma, the delivery point of WTI contracts and the largest oil hub in the US, dropped for a sixth consecutive week to their lowest level since March 2012.

Natural Gas Price Update
Natural gas futures for September delivery shed 0.48 percent to trade at $3.33 per million British thermal units on the NYMEX as of 14:30 BST. As Reuters has reported, the natural gas price was under pressure ahead of the weekly EIA inventories report expected to point to a rise in inventories. Traders and analysts polled by Reuters forecast that the EIA storage report would show an increase of about 70 billion cubic feet, as compared with an average gain of 42 billion cubic feet in the past five years.

Yesterday, the contract rose 1.7 percent to settle at $3.342 per million British thermal units, supported by forecasts of above-normal temperatures in the US which could boost energy demand. Today, Reuters quoted MDA Weather Services as forecasting cool weather in the Midwest and East in its one to five-day forecast, with warmer weather likely to return to the upper-Midwest and Northeast in the six to 10-day period.


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