Skip to content

Suez Isn’t A Real Crisis For Oil Prices

Liam Denning,The Wall Street Journal

Oil bulls are misreading the wisdom of crowds.

Near-month U.S. crude-oil futures jumped above $100 a barrel Wednesday, ostensibly because of mass protests in Egypt.

But it is worth remembering that Egypt is a net oil importer, not exporter. As for the Suez Canal, net traffic of oil and refined products—that is, the difference between northbound and southbound transit—amounted to roughly 101,000 barrels a day in the first quarter, according to the Suez Canal Authority. That is all of 0.1% of global demand. Egypt’s Suez-Mediterranean pipeline carries more oil—about 1.7 million barrels a day in 2011 according to the U.S. Department of Energy—but even that runs well below capacity, suggesting it is hardly vital.

There is some pressure on oil supply, but not from Egypt. Disruption in neighbor Libya has been a bigger factor. Meanwhile, floods in Canada have disrupted output there, and domestic U.S. supply growth has also slowed in recent weeks.

Yet the wider picture still isn’t supportive for oil prices. Based on trailing four-week consumption levels, U.S. commercial oil stockpiles, not counting strategic reserves, covered almost 62 days of demand in mid-June, the highest level in almost 20 years. Despite a drop in late June, demand coverage remains around 60 days.

As North American output picks up again, and domestic demand remains sluggish, inventory will rise. It is notable that even as near-month futures have risen by about $7 a barrel in the past month, futures for 2016 and beyond have dropped.

Full story