Oil prices hit a 14-month high of $100 per barrel of light crude over tensions in Egypt and the fear that it could spread to the broader Middle East.
US light crude rose over two percent to $101.80 per barrel in Asia trade. Meanwhile, Brent crude also rose to $105.20 per barrel. The news comes as Egypt’s President Mohammed Morsi refused to step down from power, despite an ultimatum by the country’s military.
Morsi’s decision to reject the ultimatum caused concerns over whether or not the tensions will escalate even further. There are also fears that the conflict could hurt oil supply through the Suez Canal. Victor Shum, a vice president of IHS Energy Insights, explained:
“The turmoil in Egypt has caused the market to inject some premium into oil futures.”
While Egypt has a negligible amount of oil production, the country controls the Suez Canal and pipeline. The country is also considered one of the largest and most powerful in both the Middle East and Africa, which is home to roughly one third of the world’s total oil production.
Matt Smith, a commodities analyst at Summit Energy in Kentucky, added, “The fear of contagion in the Middle East to major oil producers is the ultimate concern.” More than 23 people have died in the protests in Egypt and the military has allowed the president 48 hours to resolve the conflict, or face a potential coup.
However, it is unclear what actions the military will take once the 48 hour mark hits, as a military spokesman has assured there will be no military coup in the volatile country.
Along with concerns over Egypt clashes, oil prices have risen 16 percent in the past two months. Traders have attributed the climb to an improving economy, a higher demand for crude oil from refiners based in the United States, and problems of getting supplies to market.
Before the price per barrel hit $100 on Tuesday, Addison Armstrong, director of market research at Tradition Energy, predicted the milestone, saying, “In my mind, it’s only a matter of time before crude breaks $100.”
Oil prices hit that high mark just hours later.
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