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Egypt & Implications for Oil
(This post was written last week, forgive the publishing delay --The Analyst)
I have been asked for the past week about possible risks to the Suez
Canal as it’s a major a potential choke point for oil flows. According
to the Energy Intelligence Agency as of November 2010 nearly 2 million
barrels a day of petroleum traveled thought the canal . In the worst
and highly unlikely case - a closure of the canal - shippers of oil
would be forced to send tankers around Africa causing tanker charter
rates to increase and add around ten dollars to the price of NYMEX
Light Sweet Crude. ICE Brent oil would likely be affected more to the
upside due to a lack of land storage and other market dynamics that
effect the basis between NYMEX Light Sweet that I will write about
another time.
I, for one believe Mubarak himself represented the greatest threat
to the security of the canal. According to major media sources,
Egyptian military generals of to threatened to tear off their uniforms
and join protesters in the street against Mubarak unless he gave his
resignation today. Many retail traders get caught in the hype and do
not know about the Suez canal & it’s control by the Egyptian
military. The Egyptian Army has always maintained a large security
presence around the canal because of its importance to the economic
well-being as well as the international relevance of Egypt.
Had Mubarak not resigned, the senior military officials would have
joined protesters in the street and the officers and grunts who had
even less love for Mubarak then their superiors would have almost
certainly abandoned their posts. Had you had the military abandon their
posts guarding the canal that would have been the most dangerous risk
for the canal. Terrorists would have looked at an unguarded
canal as the opportunity of a lifetime, now that Mubarak has left
office and the military is in control this is out of the cards.
Looking to the future, in my humble opinion, no matter whoever ends
up in control of Egypt when power is hopefully tuned to civilian rule
would have to keep the canal open as closing it would be more of pain
in the ass for oil shippers then a real crisis.
The greatest question that should be on the minds of energy traders
now is the implication this revolution in Egypt will have in/for the
other oil-producing nations in the region. The argument could be made
that with the events in Egypt playing out as they have OPEC and
non-OPEC producers would likely increase production to buy political
good-will from their citizens through handouts. An increase in
production would obviously would provide some relief in oil prices in
the coming months.
Large energy traders are already arbitraging from March to April due
to a market condition known as contango. Contango is simple to
understand: if the nearest delivery month future contract price is
below the later delivery months the market is in contango. Because
April is $3.72 then in March they will buy taking physical delivery for
March and sell April futures against it. When delivery is taken the
energy trader buys the oil then pays for it to be stored at a cost of
$1.35 a month per barrel then as they hold a short position to hedge
against price declines. The trader collects the difference between the
$3.72 and $1.35 and making $ 2.37 before the financing costs to pay for
the oil and fees for delivery.
The major problem is retail traders who have futures accounts can't
do this trade because of the financing requirements and expertise in
the physical oil market required, but I thought I would share so you
could get a understanding of what the energy traders do.
Paper Barrel has followed the energy markets since for over eight
years. He has a bachelors degree in Political Science (focusing on
International Security) with a minor in Economics. While obtaining his
Bachelors degree he networked in the energy industry in New York. After
reviving his degree he took a job as a commodities broker and passed
the National Commodity Futures Exam Series 3 .Working as a commodity
broker for a year he helped introduce small oil distributors to energy
futures and Clearport products to meet hedging needs. Currently works
to also broker physical JP54 Jet fuel and consult on hedging strategies.
He mainly focus on hedging energy.. If you are interested in more on
energy market & derivatives issues you can follow him on twitter @paperbarrel if you have questions or feedback please email him: paperbarrel at gmail dot com.
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Here's what's going to happen. Egypt will still have the same problems it had prior with Mubarak. Too many people and not enough food. In five years we will see a family member of the Mubarak clan walk back into Egypt as the situation gets worse, not better because of a ballot being cast, namely because the land resources of the area do not change the fundemental problems. With a 70 billion dollar bankroll, the family member will then run for office, denounce his cruel cousin, then proceed to run the country. Business as usual basically. Except the general population of Egypt will, just like most morons that believe MSM drivel about forgiveness and renewal crap, this cousin is somehow better. Mubarak will be forgiven and promptly become the equivalent of a senator. At that point in time the Mubarak clan will rob the country blind again, this time by proxy of "democracy".
No space to grow food because there are still WAY too many people occupying, living in, shitting in, fucking in, breathing in that space. Same goes for the entire middle east. The population you see right now is because of oil feeding the problem with food and regional over population.
These are the muslim countries. If you want to see a magic trick, wait for Israel to come up short on food stuff for it's own population. It's not a religious thing, it's the fact crops in the middle east haven't been doing that well hence the increased importation of food. I would love to hear any stats on reserve food that Israel has on hand because I'm guessing it's identical to every other country in the region living hand to mouth. Grain comes off the boat and is eaten pretty much the same week it's supplied.
Just think, this is "winter" time. A million and one psych reports assest to summer time heat = violence. If people are shocked now on the slight rough housing during the protests, wait until people are truely hot and bothered.
Good time to be a soldier of fortune.
I don't like to bag on contributors, I do learn by listening to all points of view, but this is pretty sophomoric 'analysis'. No real insight at all.
Forgive Paperbarrel (the author), it's his first time doing this whole blog thing. He's pretty knowledgable, just be patient, no one has ever picked up this thing overnight (I've been doing it for years and I'm still learning!)
Thanks,
The Analyst
al queada quo vadis? cia creation? all talk no action..better take more freedom from the American public to counteract this potent group..LOL..psy ops at its worst.
But where is all that oil going to be stored? My understanding is there is not enough room to store all the barrels slated for delivery in the March contract.
The only question worth asking a middle east specialist worthy of his smelling salts is the following : did you participate in the Mubarak family 70 billion $ swindle that lasted 18 days before he scampered off with his army white sheet for no subsequent legal action. If you did let's open champagne bottle..if you didn't you're no mid-east specialist! Make your choice and come clean!
looks like the house of saud is sending troops and riot gear to bahrain. id say they were a bit worried.
http://nakedempire.wordpress.com/