Oil hits $100 due to Suez supply fears

OIL surged over $100 a barrel for the first time in more than two years yesterday as investors feared the turmoil engulfing Egypt could disrupt shipments passing through the Suez canal and impact supply.

Brent crude for March, the global benchmark, leapt by $1.59 to settle at $101.01 a barrel – the highest since Lehman Brothers’ collapse in September 2008 – as the protests against President Hosni Mubarak’s regime intensified.

While Egypt is not a major oil-producing country, its Suez Canal is a crucial passageway linking the Red Sea and the Mediterranean through which an estimated two million barrels of oil pass through each day – roughly equivalent to the daily oil output of Iraq.

Oil cartel OPEC secretary general Abdullah Al-Badri yesterday tried to reassure markets by saying it would up supply if there was a real shortage, but reiterated that the Suez, which is patrolled by armed guards, remains open with shipping uninterrupted.

“We are trading on fear,” said Tom Bentz, a broker at BNP Paribas Commodity Futures in New York.

Analysts said that the main concern was that the unrest in Egypt, which follows upheaval in Yemen and Tunisia, could spark turmoil in the Middle East and crucial oil producing regions such as Saudi Arabia – the world’s largest oil exporter.

“2011 is already turning out to be a year when it would be risky to get heavily involved in the oil market without maintaining a fairly strong focus on the key geopolitical developments,” said BarCap in a note.

Stock exchanges were also rattled by Egypt’s woes with major markets in Asia and Europe falling. Japan’s Nikkei fell 1.1 per cent, London’s FTSE 100 dropped 0.31 per cent to 5,862.94, and Germany’s DAX slipped 0.36 per cent to 7,077.48. The Bank for International Settlements data showed yesterday that French banks were the most exposed to Egypt, being owed £11bn in total by the Egyptian government and companies, with UK banks owed £6.7bn.

Violent clashes saw the death toll in Egypt reach over 100 yesterday and local and foreign travel companies have suspended all outgoing trips as tourists rush to evacuate the country.

HSBC, which has a total of 100 branches in 13 cities in Egypt, said yesterday it will remain under lockdown for a third day today, maintaining customer access via the Internet and phone.