(Bloomberg News) Oil dropped from a two-year high as concern eased that supplies through the Suez Canal may be disrupted by unrest in Egypt. Brent crude traded at more than $100 a barrel for a second day.
Futures fell as much as 1.1% , trimming a two-day gain after Suez Canal officials said traffic is moving normally through the main artery for more than 2.2 million barrels of oil a day. A U.S. government report tomorrow may show stockpiles grew for a third week, according to a Bloomberg News survey.
"So far the escalating violence in Suez has seen no specific targeting of shipping facilities or passing ships," Andrey Kryuchenkov, a London-based analyst at VTB Capital, said in a note. "We still see little threat to major producing nations, with the exception of Algeria, where we had some unrest earlier this month."
Oil for March delivery on the New York Mercantile Exchange dropped as much as $1.03 to $91.16 a barrel and was at $91.30 a barrel at 1:44 p.m. London time. Yesterday it gained to $92.19, the highest settlement since Oct. 3, 2008. Futures rose 0.9% in January. Brent for March settlement fell as much as 82 cents, or 0.8% , to $100.19 a barrel on the ICE Futures Europe exchange in London. It rose to $101.73 yesterday, the highest price since Sept. 29, 2008.
Egypt Unrest
Futures in New York rose 3.2% yesterday as opposition groups demanding Egyptian President Hosni Mubarak's ouster urged more people onto the streets. About 2.5% of global oil production moves through Egypt via the Suez Canal and the adjacent Suez-Mediterranean Pipeline, according to Goldman Sachs Group Inc.
The canal was operating normally today amid the mounting protests, according to an official from the waterway.
Fifty-six vessels are passing through the canal, more than the average of about 50, Ahmed El Manakhly, head of traffic for the Suez Canal Authority, said in an interview with Andrea Catherwood on Bloomberg Television's "The Pulse." Mubarak has meanwhile offered to negotiate with opposition movements.
"By the looks of it, the army is not going to attack the people, which removes the risk premium in the market," Kryuchenkov at VTB said by phone.
The Organization of Petroleum Exporting Countries would increase output if the unrest in Egypt disrupts supplies from the Middle East, Secretary-General Abdalla el-Badri said in London yesterday. Crude prices at $70 to $80 a barrel are "appropriate," Saudi Arabian Oil Minister Ali al-Naimi said at a conference in Geneva yesterday.
High Inventories
"A lot of producing countries like OPEC are saying every day that a lot of crude oil is available, there is no shortage," said Ken Hasegawa, a commodity derivative sales manager at broker Newedge in Tokyo. "WTI is very weak because of high inventories."
An Energy Department report tomorrow may show that U.S. crude inventories climbed by 2.5 million barrels last week from 340.6 million, according to the median of 11 analyst estimates in a Bloomberg News survey. The industry-funded American Petroleum Institute will report its own data today.
Brent's premium over WTI futures was at $9.20 a barrel, after surging to $11.75 a barrel on Jan. 27. The spread may eventually stabilize at $8 to $10 a barrel, Hasegawa said.
Saudi Arabia's Super Light crude sold to Asia is the first Middle East oil to climb above $100 a barrel in two years, according to data compiled by Bloomberg.
Three of the 12 crudes making up the basket price of oil produced by the Organization of Petroleum Exporting Countries have also breached the three-digit mark in the past week. Super Light to customers in Asia rose to $102.04 a barrel today, the highest since Sep. 22, 2008, Bloomberg data show.