Last week, oil futures broke through a technical and psychological resistance at $100 per barrel as tensions in the Middle East waged on, escalating concerns that supply routes could be choked in the oil-rich region. While the civil war in Syria continues, violent protests in Egypt after the ousting of then-President Mohammed Morsi last week have left a swath of dead and hundreds more injured. According to Aljazeera.com, a morgue employee "said he has seen more than 50 bodies, all of them shot dead of asphyxiated."
Egypt is not a major oil producer, but it sits astride the Suez Canal and is home to the SUMED pipeline, which are primary passages for millions of barrels of Middle East oil every day.
The unrest has spurred a rally in oil as traders price in any future supply constraints, sending oil to 14-month highs. West Texas Intermediate Crude for August delivery is up more than 2 percent on Wednesday at $105.80 at 1:00 EDT in trading on the New York Mecantile Exchange.
Strikes in Libya at key oil fields and export facilities have also worried the markets, until the standoffs came to and end in the past couple days. Libya produces about 1.6 million barrels of oil each day, but the strikes knocked production down to less than one million, according to the National Oil Corporation.
Adding further pressure to crude prices today, a closely watched report from the U.S. Energy Information Administration showed a reduction of 9.9 million barrels in crude stockpiles to 373.9 million barrels for the week ended July 5. The drop put inventory at five month lows. Analysts were only expected a decline of about 3 million barrels.
A week before, oil inventories shed more than 10 million barrels, meaning inventories have contracted more than 20 million barrels, about a week's supply at the current U.S. consumption rate.
The report from the EIA follows a report on Tuesday from the American Petroleum Institute showing a 9 million barrel drawdown in stockpiles last week and a report from the Organization of Petroleum Exporting Countries, or OPEC, saying that oil demand will increase approximately one million barrels per day in 2014 and cautioned of political risk surrounding supply.
August contracts for WTI crude, the most actively traded on the NYMEX, have surged more than around 13 percent from under $94 per barrel on June 24, reaching technically overbought levels, but the disarray overseas and slumping inventories will likely mean oil will hold above $100 in the near term.
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