After a disappointing sell-off in April, crude oil has finally regained some positive momentum, although not necessarily for the most positive reasons. The fossil fuel is currently sitting at a 12-month high, as it finally broke through the triple-digit barrier for the first time since September of 2012. While the riots in Egypt have certainly played a role in the rapid rise in the price of crude, the U.S. supply levels are also playing a key role behind the scenes [for more crude oil news and analysis subscribe to our free newsletter].
Crude Oil on the Rise
The most obvious reason for crude making such a sharp jump–more than 6.5% in just a week–has been the riots in Egypt. Civil unrest has struck the nation and many fear what would happen should riots spread into the Middle East. As the days go on, the conflict only seems to get worse, as the Egyptian military saw its threatening ultimatum to President Mohamed Morsy come and go, only to have the military then take over the state TV.
Though Egypt itself is not among the top producers in the world, it still accounts for a fair amount of oil, and its neighbors account for even more. If protests and riots spread to other nations, the supply of crude could feel a major pinch, especially with the way U.S. supplies are beginning to shape up [see also How Crude Oil Traders Manipulate The Market].
In the past few weeks, the U.S. has watched oil supplies come under pressure as strong output continues. British Petroleum (BP) just recently announced that its Whiting refinery is back online and operational after undergoing a five-year restoration process, which will draw even further on supplies. Last week’s EIA crude oil inventories figures showed a 10.3 million barrel drop in supplies when analysts had only expected that figure to fall by three million barrels.
Where Crude Goes From Here
While prices are enjoying a temporary spike, they will most likely cool off as soon as the conflict in Egypt does the same. As far as the supply issue is concerned, there are two ways that scenario can break down. The U.S. is rapidly increasing its presence in the oil space and has been the beneficiary of some hefty finds over the past few years, giving it the capacity to increase supply [see also USA Oil Reserves: The World’s Largest?].
At the same time, this surplus of oil may lead producers to begin exporting more oil, further dwindling domestic supplies, which would keep WTI prices higher. Pay close attention to the troubles overseas as well as the trends in the ever-shifting oil space in the U.S. to make sure you stay one step ahead of the curve for this fossil fuel.
Disclosure: Long BP.