Oil surged the most since September 2009 as unrest in Egypt raised concern that protests would spread to major oil-producing parts of the Middle East.
Crude gained 4.3 percent after a day of clashes between police and protesters demanding an end to Egyptian President Hosni Mubarak’s 30-year regime. Any disruption to Middle East oil supplies “could actually bring real harm,” U.S. Energy Secretary Steven Chu said on a conference call.
“If this can happen in Egypt, there is no reason that it can’t occur in Libya or Saudi Arabia,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.
Oil for March delivery increased $3.70 to settle at $89.34 a barrel on the New York Mercantile Exchange. The contract has risen 0.3 percent this week and 21 percent in the past year.
Protesters demonstrated throughout Egypt, with clashes erupting in central Cairo. Tens of thousands of marchers chanted “liberty” and “change” after assembling at points across the city of 17 million.
Mubarak ordered a 6 p.m.-to-7 a.m. curfew in Cairo, Alexandria and Suez, state television said. Egypt’s national carrier said it suspended flights into the nation, Al-Jazeera reported.
The unrest in Egypt followed an uprising that led to the Jan. 14 overthrow of Tunisian President Zine El Abidine Ben Ali.
“Egypt and Tunisia going down aren’t a big deal for the oil market, but if the same happens in Saudi Arabia, that changes everything,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “There’s a real concern that we’re seeing the start of a domino effect.”
Saudi Arabia is the world’s largest oil exporter. The kingdom and the other seven Middle Eastern and North African countries in OPEC pumped 78 percent of the group’s oil in January, based on Bloomberg estimates.
Egypt is also home to the Suez Canal, which connects the Mediterranean and Red Seas. One million to 1.6 million barrels a day of oil and refined products moved north to Europe and other developed economies in 2008 and 2009, according to the Energy Information Administration, the statistical arm of the U.S. Energy Department.
“It looks like there is a lot of worry in the market about a possible closure of the Suez Canal because of the escalating tensions in Egypt,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “That makes perfect sense about the rally we’re seeing in the crude market.”
The EIA identified the canal as one of seven “world oil transit chokepoints” in a report earlier this month.
“Any disruptions in the Middle East means a partial disruption of the oil we import,” Chu said.
The International Energy Agency, the Paris-based adviser to 28 nations, said earlier this month that the supply of oil in the most developed economies “looks relatively comfortable,” particularly in the U.S., the world’s biggest crude-consuming nation.
“We have plenty of oil and plenty of oil reserves, so from a numbers standpoint, it’s not that big a deal,” said Phil Flynn, vice president of research at PFGBest in Chicago. “From a psychological standpoint, it is a big deal. The momentum of discontent is building, and people are starting to get nervous, especially going into the weekend.”
Brent crude for March delivery rose $2.03, or 2.1 percent, to $99.42 a barrel on the London-based ICE Futures Europe exchange, the highest settlement since Sept. 26, 2008.
New York futures narrowed their discount to North Sea Brent to $10.08 a barrel. The differential reached more than $12 a barrel on an intraday basis after Energy Department data showed stockpiles grew 2.3 percent in the U.S. storage hub at Cushing, Oklahoma, last week.
Crude oil also rose as household purchases climbed at a 4.4 percent pace in the fourth quarter, following a 2.4 percent increase in the prior three months. The gain in consumer spending compared with a 4 percent median forecast of 85 economists surveyed by Bloomberg News.
U.S. gross domestic product grew 3.2 percent between October and December, the fastest since the first quarter. It was up from a 2.6 percent rate in the previous three months. The most recent figure fell short of the 3.5 percent in the survey.
Oil rose, even as OPEC output climbed 210,000 barrels, or 0.7 percent, to an average 29.395 million barrels a day in January, the highest level since December 2008, according to a Bloomberg News survey of oil companies, producers and analysts. The increase was led by gains in Iraq and Saudi Arabia.
The IEA has asked OPEC to watch global demand closely and adjust its production accordingly, as high oil prices are a “detriment to the world economic recovery,” Nobuo Tanaka, the IEA’s executive director, said in an interview today in Davos, Switzerland.
Oil volume in electronic trading on the Nymex surged to a record 1.39 million contracts as of 4:58 p.m. in New York. That beat the previous record of 1.35 million, set April 13, according to Chris Grams, a spokesman for Nymex parent CME Group. Electronic trading for the day will end at 5:15 p.m. in New York.
The exchange doesn’t release floor-trading volume until the following business day. The previous record for combined floor and electronic trading was 1.42 million contracts, also on April 13. Volume totaled 1.01 million contracts yesterday, 50 percent above the average of the past three months. Open interest was 1.52 million contracts.