Suez Canal concerns abate, despite Cairo protest

Oil dropped from a two-year high, but held above $100 as concern eased that supplies through the Suez Canal may be disrupted by unrest in Egypt.

Brent North Sea crude for delivery in March fell 56 cents to $100.46 a barrel, one day after spiking to $101.73 — the highest level since Sept. 29, 2008, according to Agence France-Presse.

Egypt is not a major oil producer, but is home to the vitally important Suez Canal, which carries around 2.4 million barrels of oil a day — roughly equivalent to the daily output of Iraq or Brazil.

The waterway is the fastest crossing from the Atlantic Ocean to the Indian Ocean, according to the Suez Canal Authority. Should it close, tankers would have to sail around southern Africa. That would add about 12 days to a journey from Saudi Arabia to Houston, Luis Mateus, an analyst at Riverlake Shipping SA in Geneva, told Bloomberg.

Oil prices had shot up since last week, when anti-Mubarak protests in Egypt began to gain momentum. The oil industry hasn't been a target, but the nearly three million barrels transported through the Sumed pipeline and Suez Canal would be threatened by more instability.

Egyptian Vice President Omar Suleiman said on Monday that President Hosni Mubarak had asked him to start a dialogue with all political forces, while Egypt's armed forces pledged not to fire on peaceful demonstrators.

The latest news calmed markets after stocks suffered their biggest fall in nearly six months on Friday. The improved sentiment helped the Market Vectors Egypt Index ETF rise 7.9 percent, indicating investors' appetite for risk in the region had recovered somewhat.

The oil market could see more gains if protests spread to other countries in the region or the flow of oil through the Suez slows, according to the Wall Street Journal.

Ahmed El Manakhly, head of traffic for the Suez Canal Authority, told Bloomberg on Monday that Suez Canal operating hours had been adjusted to comply with a curfew imposed during the protests in Egypt, and the military had not deployed to the canal.

“The traffic through the Suez Canal has not been affected by the prevailing situation in Egypt,” El Manakhly said. “Traffic from Port Said at the northern entrance of the canal or from Suez at the southern entrance is going with normal rate and with the same and the usual schedule.”

Much will also depend on the response from the Organization of the Petroleum Exporting Countries, which will raise production to compensate for supply disruptions in Egypt, Secretary General Abdalla Salem El-Badri said Monday.