Brent oil price at $105 & may head higher as showdown in Egypt emerges

The price of Brent crude oil looks set to hold firm over $105 a barrel for sometime and may well head higher in the short term as a showdown between Egypt’s Muslim Brotherhood and the newly formed emergency Egyptian government adds more weight to unsettling the country.

Latest Brent Oil Price

In London, Brent crude oil futures for August 2013 delivery was trading at $105.47 a barrel, 07:02 GMT this morning on the ICE Futures Exchange. Brent crude oil dropped 36 cents to $105.40 yesterday and the spread between Brent crude and US WTI oil benchmarks continued to narrow.

Showdown in Egypt – Day of Rejection

Egypt is braced for further dramatic events on Friday as the vanquished Muslim Brotherhood called for a “day of rejection” following a widespread crackdown on its leadership by the country’s new interim president, Adly Mansour.

Supporters of the ousted president Mohamed Morsi, still reeling from the military coup that removed their leader from power, are expected to take to the streets after Friday prayers following a series of raids and arrests that decimated the Muslim Brotherhood’s senior ranks and consolidated the army’s hold on the country.

The arrests of up to 300 Muslim Brotherhood officials are believed to have been ordered since the country’s military commander, General Abdel Fatah al-Sisi, brought an end to Morsi’s presidency on Wednesday night, a little over a year since he was inaugurated as the country’s first democratically elected leader.

Suez Canal & SUMED Pipeline

Egypt itself is not a particularly big producer of oil and it is not even in the OPEC club, however the country is a major supply route thanks to the Suez Canal and SUMED pipeline. The canal links the Red Sea and Gulf of Suez with the Mediterranean, while the SUMED provides capacity for cargoes too big to transit by ship.

Respectively, the canal transits about 535,000 barrels of crude northbound every day, and the pipeline accounts for about 1.7 million barrels a day, according to the US EIA. Disruption of those crude oil supply routes would be bad news for Europe who use most of the oil.

Tom Pugh, commodities economist at Capital Economics, points out: “Nobody in Egypt would gain from attacking the canal or pipeline except from perhaps Islamic extremist terrorists.”

The Suez Canal Authority, which operates the waterway has said it has all the authorities needed for running the Suez Canal without being limited by the laws and the systems of the Egyptian government.

US Oil Inventories

On Wednesday, the US Energy Department said that weekly US crude oil inventories fell by 10.3 million barrels which was the biggest fall in 13 years and more than three times the drop that had been expected. Such a large fall will add weight to higher Brent and WTI oil prices.

“The oil market is ignoring slightly weaker share prices and the stronger dollar as it has its own very bullish issues to deal with. These include the crisis in Egypt and the US stock draws.” said Tamas Varga, oil analyst at broker PVM Oil Associates.

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Brent oil price at $105 & may head higher as showdown in Egypt emerges