Cart (0)
business news
PRINT
Fears that the Suez Canal will be closed as a result of the political unrest in Egypt are the latest sign that the price of oil remains as much a psychological measure of market confidence as an actual read of economic strength.
No market indicator moved as quickly or as strongly as the price of crude oil on Friday, when the political events in Egypt reached a crescendo -- a crescendo from which they haven't come back down yet. Crude oil rallied by 4% on Friday as the equities markets tanked.
The Suez Canal remains open on Monday, and crude oil price's big rally has moderated, but it was still moving up as the week began, above $90. Brent crude hit $100 for the first time since October 2008 on Monday.
The Suez Canal is a broader story than just an energy sector one, with global shipping rocked by the thought that all tankers would have to be diverted around the southern tip of Africa, and shipping stocks rallying on Friday to levels that they had not recently seen given a glut in the sector.
Exxon Mobil
Nevertheless, the Egyptian political crisis is just the kind of exogenous event that sets off all the alarm bells about how quickly global reliance on Middle East oil can send investors into a panic.
All the usual interest groups were out on Monday pitching their version of the events in Egypt. Only a week after President Obama set a goal of 80% clean energy for the US by 2035 in his State of the Union address, clean energy advocates were positioning the political crisis in Egypt as one more reason why a US economy dependent on Middle East oil is a losing proposition and reason to invest more in alternative sources of energy.
The political events in Egypt and the Suez Canal's key role in global shipping are far from the only psychological trigger for the price of oil, though. Coming into 2011, as crude rallied to end the year, the never-ending debate about just how high the crude oil price can go before investors begin to worry.
Indeed, the political events in Egypt raise the most fundamental, and psychological question, about the price of oil once again: is it set to upset the global economic recovery in 2011?
Jeff Rubin, former chief economist at CIBC World Markets, and author of a book on the oil price dilemma,Why the World is About to Get a Whole Lot Smaller, thinks a $147 oil price is coming by the end of 2011, and that's all it will take to upend the global markets. "We will easily get to $147 or maybe through that level, and the question is how sustainable is that price level?" Rubin asks.
The $147 oil price is a key psychological threshold because of the events in 2008, when oil hit that mark shortly before the global markets tanked. "The world economy is no better prepared for $147 oil than it was in 2008. What we will learn from the price gyrations in the next 12 months is that the world economy can't grow without pushing oil into the triple digits," Rubin contends. "There is no margin for error, and any time there is a shock prices immediately move up. Oil has only one direction to go," Rubin adds.
There are many analysts in the energy market who believe that the price of crude oil will remain in a range between $80 and $100 for the foreseeable future. Coming into 2011, bullish estimates of the oil price pushing up to $120 and beyond garnered a lot of attention, but shortly before the Egyptian crisis, the price of oil had actually slipped for six consecutive sessions, moving as low as $86, and giving support to the belief that crude may not rise as quickly or steeply as previously thought.
An energy market analyst who is in between coverage currently, and therefore could not be quoted, said $147 crude oil isn't even the biggest psychological impediment on the horizon for oil. It's hitting $4 gas at the pump again, which could happen by the Memorial Day Weekend in the US, barring a major crisis in the Middle East.
"That's where we expect the real issue, and it doesn't require $147 crude oil, but the price of oil moving above $120," the analyst said.
In any event, as political riots rage in Egypt, and the Suez Canal remains a focal point for global markets, and the price of oil remains a headline embedded in fears of a widening Middle East political crisis, it all raises the question: Is there going to be a global market recovery killer in 2011, and will it be tied to the Middle East events, the price of crude oil, or the wallets of Americans opening ever wider by the time summer vacations begin?
