Anti-government protests across Egypt have kept crude oil prices at above $100 a barrel, due to concerns over supplies through the Suez, but major upward pressure on global prices is unlikely.
Benchmark Brent crude oil closed at $105.76 a barrel on 3 July, while the US West Texas Intermediate (WTI) ended the days trading at $101.18 a barrel. The 12-crude basket from oil producers group, Opec averaged $102.24 a barrel.
The big question for the energy markets is the potential for the protests to disrupt traffic through the canal, given its importance for the shipment of oil out of the Gulf and into Europe, as well as from Europe into Asia, says an analyst at the UKs Barclays Capital.
Egypt is not a member of the cartel, but with production of around 720,000 barrels a day (b/d), the country is still a significant supplier. More importantly, it controls two pieces of critical oil infrastructure, the Suez Canal and the Suez-Mediterranean oil pipeline (Sumed) that runs from Ain Sukhna on the Gulf of Suez to Sidi Kerir in the Mediterranean.
In 2011, 800,000 b/d of crude and 1.4 million b/d of oil products passed through the canal, along with 1.7 million b/d of crude through Sumed from the Red Sea to the Mediterranean. Flows through Suez represent approximately 4.5 per cent of the global oil trade, along with 14 per cent of liquefied natural gas (LNG) shipments. The canal has previously been caught up in international crisis leading to the suspension of shipping.
There is little reason for the Egyptian military to close the canal however, since this would deprive Egypt of a major contributor to the economy. Demonstrations, however could cause disruption to shipping.
For the crude oil markets, such events are a prime example of the increasing intensity and frequency of geopolitical elements that continue to pose risks to the supply side, says Barclays in a 1 July research note.
However, the bank notes that the geopolitical events support current high oil prices, rather than providing any real upward pressure since the market remains well balanced in supply and demand terms.