Egypt is the big topic on oil trader’s minds this week but it really shouldn’t be. Although it’s been tapped as the reason WTI oil has drifted above $100 a barrel, it’s only the last of several financial and geopolitical reasons that have kept oil strong for the past several months despite the shaky performance of just about every other asset class.
And now that the military has asserted itself in Egypt and taken Morsi down from power, there might be a tendency to think that the situation will cool and so will the price of oil, but I don’t believe that. The commentary on Egypt has been celebratory, but I doubt very much that the Muslim Brotherhood will take their stripping from power easily. Indeed, even as we watch closely the events in Tahrir Square unfold, we are conveniently forgetting the many other geopolitical tinderboxes in the Middle East and elsewhere continuing to brew. There’s a newly US-funded resistance in Syria, an Iraq on the brink of civil war, a new government in Libya – even the recent political problems in Brazil might lead to some production issues down the road.
Add this to the financial inputs into the crude price that I speak about so often and have written about in my book and you’ve got a market that even over $100 a barrel has all the risks to the upside.
As I recommended last week, higher beta Exploration and Production names will fare best in this environment,…