Crude Awakening

Oil traders are fretting about the protests in Egypt. On Monday, the unrest helped push Brent crude above $100/barrel for the first time in more than two years. Full-scale chaos in the nation could rob the world of 3 Mbbls/d. Yet today's Suez isn't what it was in the 1950s, and global oil supplies are still ample. Only a broader conflagration across the region would justify keeping crude prices this high for long.

Turbulence in Egypt inevitably invites comparisons to the 1956 Suez crisis. Then, blocked shipments and pipeline sabotage cut off about 10% of the world's oil supply.

But a repeat is highly unlikely. Egypt itself is an oil minnow with production of just 700,000 bbls/d.

Even adding in the 2 Mbbls/d that pass through the Suez Canal and pipelines, the maximum potential damage is 3% of global (87 Mbbls/d) output. And little short of complete chaos in Egypt would cause such an extreme disruption.

What really worries traders is that unrest in Tunisia and Egypt could fuel similar protests in bigger oil producers like Libya or even Saudi Arabia. This would create massive uncertainty over oil supplies; though even the most extreme Islamic governments remain happy to profit from oil sales. In the meantime, however, global oil supply is still ample. OPEC has unused pumping power of 4.6 Mbbls/d—more than 3x than in 2008, according to the U.S. DOE. Meanwhile, declining demand from rich nations will go at least some way toward offsetting rising usage in China and other rising economies. The oil market tends to factor in the remote chance of catastrophic events. And the chances of a region-wide meltdown—however remote—are greater than a week ago. Still, Egyptian unrest would need to both deepen and broaden to justify keeping oil prices above $100/barrel.