Crude oil in New York dropped from a two-year high as concern eased that supplies through the Suez Canal may be disrupted by unrest in Egypt. Brent crude traded at more than $100 a barrel for a second day.
Futures slipped 1.5 percent after canal officials said traffic is moving normally through the artery for more than 2.2 million barrels of oil a day. OPEC Secretary-General Abdalla el-Badri said yesterday that the producer group would increase output if the unrest interrupted transportation.
“The unrest in Egypt has had no impact on oil movements and OPEC has said that they would make up for any disruption,” said Tom Bentz, a broker with BNP Paribas Commodity Futures in New York. “We rallied strongly over the last two days and are now taking a pause. The premium is shrinking a bit.”
Crude oil for March delivery fell $1.42 to settle at $90.77 a barrel on the New York Mercantile Exchange. Futures closed at $92.19 yesterday, the highest settlement since Oct. 3, 2008. Futures are up 22 percent from a year ago.
Brent oil for March settlement rose 73 cents, or 0.7 percent, to end the session at $101.74 a barrel on the ICE Futures Europe exchange in London. It was the highest settlement for the European benchmark since Sept. 26, 2008.
Prices dropped from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles increased 3.77 million barrels to 346.5 million. March oil declined $1.51, or 1.6 percent, to $90.68 a barrel in electronic trading at 4:32 p.m.
Futures in New York rose 3.2 percent yesterday as opposition groups demanding Egyptian President Hosni Mubarak’s ouster urged more people onto the streets. About 2.5 percent of global oil production moves through Egypt via the Suez Canal and the adjacent Suez-Mediterranean Pipeline, according to Goldman Sachs Group Inc.
The canal was operating normally amid the mounting protests, according to an official from the waterway.
Fifty-six vessels are passing through the canal, more than the average of about 50, Ahmed El Manakhly, head of traffic for the Suez Canal Authority, said in an interview with Andrea Catherwood on Bloomberg Television’s “The Pulse.” Mubarak has meanwhile offered to negotiate with opposition movements.
Egypt deployed troops to help protect the SuMed pipeline, an official with knowledge of the buildup said. The military’s deployment began Jan. 28, said the official, who declined to identify himself because of the sensitivity of the security operation. SuMed added 16 guard posts to the 14 it already had in place along the 360-kilometer (220-mile) pipeline, the official said today.
In a further example of spreading unrest in the region, Jordan announced a change of government today following protests last week. Prime Minister Samir Rifai resigned and King Abdullah asked Marouf Bakhit, to form a new government. Abdullah told Bakhit his main task will be to “take quick, concrete and practical steps to launch a genuine political reform process,” the Royal Court said in an e-mailed statement.
“The unrest continues to spread and staunch U.S. allies are threatened,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The fear premium in oil process won’t entirely disappear until the Egyptian uprising ends.”
The Jordanian announcement and Egyptian protests follow a revolt in Tunisia that forced President Zine El Abidine Ben Ali into exile on Jan. 14.
“The run-up in prices may end up a bull trap,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “It’s unlikely oil will hold its gains because there’s not enough happening to threaten the flow of oil. We’ve yet to see unrest spread to the countries that matter such as Saudi Arabia and Kuwait.”
Saudi Arabia, the United Arab Emirates and Kuwait, three of OPEC’s six biggest oil producers are located on the Arabian Peninsula and haven’t seen unrest.
“The oil market currently has more than enough oil to meet rent demand,” el-Badri said. “Global inventories are high. Forward cover is close to 60 days, which means it’s six to seven days above the five-year average.”
Oil prices at $70 to $80 a barrel are “appropriate,” Saudi Arabian Oil Minister Ali al-Naimi said at a conference in Geneva yesterday.
“Given that a greater number of vessels are going through the Suez Canal than average and the amount of OPEC spare capacity, the rally of the last couple days is more about speculators trying to run the market up to $100 than anything else,” said Addison Armstrong, director of market research at Tradition Energy, a Stamford, Connecticut-based broker.
Energy Department Report
An Energy Department report tomorrow may show that U.S. crude-oil inventories climbed by 2.5 million barrels last week from 340.6 million, according to the median of 15 analyst estimates in a Bloomberg News survey.
Oil volume on the Nymex was 849,940 contracts as of 4:33 p.m. in electronic trading in New York. Volume totaled 1.01 million contracts yesterday, 45 percent higher than the average of the past three months. Open interest was 1.51 million contracts.