Oil prices up on Egypt crisis as Mubarak clings to power

Dubai (Platts)--11Feb2011/548 am EST/1048 GMT

Brent crude oil futures gained more than $1/barrel in early Asian trade Friday as Egypt braced for the biggest anti-government protests since the start of the January 25 revolt against President Hosni Mubarak, who was clinging to power even after delegating some powers to his vice president.

Mubarak, in an address to the nation late Thursday, announced that he was delegating power to Vice President Omar Suleiman, the country's former intelligence chief, but staying on till the next presidential election in September despite the mass protests insisting that he step down immediately.

"It showed that the administration isn't really getting what the protesters want, and that's raising the risk premium for oil," said Jeremy Friesen, a Hong Kong-based commodity strategist with investment bank Societe Generale.

At 0300 GMT Friday, NYMEX March crude traded 72 cents higher at $87.45/barrel. The front month Brent contract on ICE, which was closed when Mubarak made his late night address to the nation Thursday, rose sharply by 77 cents to $101.64/b before moving higher to $101.95/b later in the session.

Oil prices, which normally have an inverse correlation with the US dollar's movement, bucked the trend on Friday as the US currency strengthened in reaction to the uncertainty in Egypt as traders sought safer assets.

Concerns that the Egyptian protests could spread to other parts of the oil-rich Middle East or threaten the security of oil tanker and LNG traffic through the Suez Canal pushed oil prices earlier this week to their highest level in 28 months. March Brent topped $103/b, but retreated when it appeared that the crisis in Egypt was close to being settled.

There has also been concern since the anti-Mubarak protests began that the unrest might have an impact on the key oil transit route through the Suez Canal, a former battleground for world powers, and the flow of crude oil through the Sumed pipeline between the Red Sea and the Mediterranean.

The US Energy Information Agency estimates that about 3.1 million b/d of crude oil passes through the Suez Canal or the Sumed pipeline, representing about 6% of all daily global waterborne oil movements. About 20% to 25% of all global LNG also pass through the canal, the EIA estimates.

The hundreds of thousands of protesters in Cairo's Tahrir Square, where expectations were high that Mubarak would step down after 30 years in power and allow the transition to a national unit government, chanted anti-Mubarak slogans late Thursday and insisted that they would continue with the protest until their demands were met in full.

Protest leaders called for a march of 20 million people nationwide on Friday, ignoring a plea by Vice President Omar Suleiman to quit the square and return home and get back to work.

Tensions were high in anticipation of an imminent "important statement" by the supreme military council, expected to come before Friday prayers, when tens of thousands of Egyptians are expected to swell the streets and join the protests in Tahrir Square.

However, oil prices eased after the Egyptian armed command issued a communique guaranteeing an end to the state of emergency "as soon as circumstances allow" and pledged to honor the demands of peaceful protesters in seeking an end to corruption and democratic change.

The lifting of emergency rule, in place since the 1981 assassination of President Anwar Sadat by Islamist extremists, was a key opposition demand who saw it as the justification for Mubarak's extended rule.

Amid mass street protests against Mubarak's grip on power, Egypt's top generals announced Thursday that they would take steps to "protect the nation...in support of the legitimate demands of the people."

Some had interpreted this "communique number one" as a threat to launch a coup.

Nobel Laureate and opposition figure Muhammed ElBaradei warned Thursday that Egypt would "explode" and urged the army to intervene, a call echoed by some of the protesters on the street.

In Washington, where the US administration has been following closely the unfolding crisis in Egypt, one of its strongest allies in the region and the second largest recipient of US aid after Israel, President Barack Obama said the transfer of power was not enough. "The Egyptian government must put forward a "credible, concrete and unequivocal path toward genuine democracy, and they have not yet seized that opportunity," Obama said.

--Thomas Hogue, thomas_hogue@platts.com

--Kate Dourian, kate_dourian@platts.com

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