European benchmark Brent crude oil prices broke the $100 a barrel barrier this week, hitting $102.74 a barrel on 3 February after a week of unrest and violence in Egypt.
With oil fundamentals relatively balanced – global spare capacity is falling while oil demand is strong – prices are expected to be driven by geopolitics.
Government officials report at least five deaths and more than 800 people injured during overnight clashes between demonstrators and pro-Mubarak groups in Cairo’s Tahrir Square.
The unprecedented clashes in the Egyptian capital, which have ranged from stone-throwing to charges on horses and camels has prompted investors to buy oil in the expectation that prices could rise further. This is added to concerns over the Suez canal, which carries between 2 million to 2.5 million barrels a day (b/d) of crude oil and oil products and the Suez oil pipeline which transports another 2 million b/d.
However, analysts at Barclays Capital argue that while any short-term disruption to the canal or pipeline will have no impact on underlying oil output, the impact is “likely to reverberate through changes in the pattern of world trade on regional crude prices”.
The spike in Brent prices has widened the spread against US benchmark West Texas Intermediate (WTI) contract prices to $11.15 a barrel. On 2 February, WTI prices had settled at $91.59 a barrel, up $4.82 from 30 January when they were at $86.77 a barrel.
The spread is likely to increase further due to oversupply in the US port of Cushing in Oklahoma. US inventories stood at rose 2.6 million barrels to 343.2 million in the week ending January 28.
The 12-crude basket of exports from the member states of the oil producers group Opec are expected to average $96.53 a barrel for the week ending 4 February. This is up $4 on the previous week, which settled at $93.02 a barrel.