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What Egypt Means for Crude: Pro Trader

Tuesday, 2 Jul 2013 | 4:10 PM ET
Oil's Risk Premium Increases
Tuesday, 2 Jul 2013 | 12:30 PM ET
The Futures Now team discusses whether unrest in Middle East will increase oil prices.

As the situation in Egypt escalates, crude oil prices have approached the $100 mark. There is always a significant risk premium built into the price of crude based on the tumultuous political nature of the Middle East. Egypt is not a huge oil producer, but it is important to the oil market because of its proximity to key shipping lanes.

(Read More: US presses Egypt president Morsi to make political concessions)

In reality, the massive protests against Egyptian President Mohamed Morsi we are currently seeing probably won't end up resulting in any supply disruption—or at least, any disruption that offsets the decent supply levels of global crude.

The issue, however, is that the market has been reminded that there is headline risk, and that short oil positions can cause anxiety. This is particularly true considering that the market will be closed for the Fourth of July holiday.

Hundreds of thousands of Egyptian demonstrators gather in Cairo's landmark Tahrir square during a protest calling for the ouster of President Mohamed Morsi on July 1, 2013. Egypt's armed forces warned that it will intervene if the people's demands are not met within 48 hours, after millions took to the streets to demand the resignation of Morsi
Mohamed El-Shahed | AFP | Getty Images
Hundreds of thousands of Egyptian demonstrators gather in Cairo's landmark Tahrir square during a protest calling for the ouster of President Mohamed Morsi on July 1, 2013. Egypt's armed forces warned that it will intervene if the people's demands are not met within 48 hours, after millions took to the streets to demand the resignation of Morsi

That being said, I don't believe crude will stay at these lofty levels for very long. Over the past year, we have approached the $100 a barrel level several times, and each occasion has been met with selling.

Selling pressures probably result from the perception of demand destruction, or the ever-increasing supply of domestic oil.

(Watch: Look Out for Huge Oil Spike)

After the holiday ends I would be interested in selling August crude oil futures in the high $99 area, with an initial target of $96.00. If we settle above $102, that would go a long way toward convincing me that my thesis is wrong.

Jim Iuorio is the managing director of TJM Institutional Services. Follow him on Twitter @JimIuorio.

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