Blackrock sent out a short memo yesterday on the ongoing situation in Egypt.
Most of the analysis is kind of vanilla:
- Egyptian equities have dropped. (Who would have guessed?)
- Other equities in the Middle East have also fallen, though not as much as Egypt. (No kidding.)
- Sovereign debt has absorbed some of the liquidity sloshing around in the global financial system. (US Treasuries are a good bet in a flight to quality scenario: Who knew?)
But the Blackrock analysis of oil pricing is interesting.
Egypt of course controls the Suez Canal. Also, the SuMed—Suez Mediterranean—oil pipeline runs through the Northeastern corner of Egypt, as well, carrying oil from the Gulf of Suez to the Mediterranean via a parallel route to the canal.
While Egypt itself is not a major producer of oil, the Suez Canal & the SuMed Pipeline make it a strategic player in the oil markets. According to the memo, the Suez Canal carries approximately 1.8 million barrels of oil per day, while the SuMed pipe transports approximately 1.1 million barrels per day.
To put that in perspective: The United States consumes about 20 million bars of oil a day, according to NationMaster.com.
The approximately 3 million barrels a day that travels through Egypt would therefore represent about 15 percent of U.S. domestic consumption.
Perhaps it's not a great mystery then, as the report points out, "Based on fears of transport disruptions, oil prices briefly approached $100 per barrel."
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