WTI crude for September delivery rose 0.62 percent to $107.51 before paring back slightly to $107.27 on the New York Mercantile exchange on Aug. 15 on unusually heavy volume, sparked by a sell-off in US equities as well as a fresh round of violence that rocked Egypt for a second straight day.
In July, massive protests against the Muslim Brotherhood government led to a military coup in which democratically elected President Mohammed Morsi was taken into custody, where he currently remains. WTI crude spiked nearly 9 percent, the biggest jump in almost a year, as investors and traders became nervous about the prospects of Egyptian turmoil spreading into or connecting with ongoing unrest in neighboring countries.
Egypt controls the Suez Canal, a key waterway through which nearly 10 percent of the world’s energy supply is shipped on a yearly basis.
Egypt’s military is typically considered the Middle East’s most professional and powerful, making a stoppage of shipping a very unlikely event, particularly in light of the fact that a substantial section of the country’s political forces appear to have supported the coup. That picture changed on Wednesday, however, as Morsi’s supporters refused military orders to disperse from two large encampments in Cairo. The military declared a state of emergency, storming the protest camps and leaving a death-toll upwards of 500 according to the most recent tallies. The brutal show of force led the country’s Vice-President Mohammed el-Baredei to resign from his post, and US President Barack Obama to cancel joint-military exercises with Egypt’s armed forces that had been scheduled for next month.
While there is genuine uncertainty about the path ahead, some have worried that the political polarization that has increased exponentially since July’s coup could push Egypt towards something similar to a civil war. Morsi entered office last year as the country’s first leader to rise to power through the ballot box, but won by a very slim majority that only exacerbated political divisions.
But the rally in WTI prices was also due to the rather vicious sell-off that has hit US equities for the better part of the week. On Thursday, this was amplified by the best weekly jobless claims data since late 2007, as well as a modest 0.2 percent increase in the consumer price index for the month of July.
In recent months, investors have grappled with the notion that positive indicators emanating from the US economy will necessarily translate into the Federal Reserve’s cutting back on $85 billion monthly in bond purchases. The Fed itself has seemed to confirm that the tapering of purchases will begin before the end of the year, and perhaps as early as September.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer