THE ECONOMIC TIMES (India)
Jan. 31, 2011
MUMBAI: The political unrest in Egypt, which threatens to destabilise the oil-rich Gulf region, fuelled a rally in oil and gas exploration company shares on Monday. Analysts expect the rally to continue over the next few days as they feel the Egyptian crisis, if not resolved peacefully, could hamper petroleum imports into the country.
Brokers are recommending shares of oil exploration companies on expectations that the Egypt unrest could trigger an oil crisis . Most analysts ET spoke to believe that Brent crude global crude prices could breach $100 a barrel over the next few days.
"Crude prices will spike in the short term... it will benefit oil exploration companies like ONGC ,GAIL , OIL, CAEIN INDIA and Reliance Industries ," said Deepak Darisi, oil analyst at LKP Securities.
"The Egypt crisis has spawned negative sentiment in the global crude market. If the conflict goes out of control, it could impact oil supplies to Europe and Africa via the Suez Canal, but such a scenario is highly unlikely as there is too much at stake for developed countries. Egyptian authorities will be forced to settle the issue before it gets out of hand."
Countries around Egypt produce nearly a quarter of the world's oil supply, hold nearly all of its excess production capacity, and account for a majority of its proven oil reserves. Oil prices are highly sensitive to potential supply disruptions. This is even more in the case of Egypt because it is home to the Suez Canal, a shipping course that connects Asia to Africa and Europe.
An estimated 1.8 million barrels per day of crude oil and refined petroleum products flowed through the canal to the Mediterranean Sea in 2009, according to data collated by US Energy Information Administration.
"Oil exporting countries in Europe and Africa are worried about an oil pipeline disruption (passing along the Suez) by angry protestors. They are also apprehensive about the possibilities of a Suez canal blockade," said Alex Mathews, head - research, BNP Paribas Financial Services. "In such cases, oil supply will decline and crude prices will shoot up, benefiting exploration companies," he said.
Another factor going in favour of oil exploration companies is the payment imbroglio between India and Iran. Iran, a major oil exporter, has been pressuring importing countries to pay in euro instead of US dollar. Iran has threatened to stop selling if its requirement is not met. India, which imports 18 million tonnes of crude from that country (overall crude requirement is 185 million tonnes per annum), is yet to reach a consensus on the payment issue.
"The payment issue, if not settled, could create temporary crude shortage in the country. It could lead to capacity under-utilisation among oil refiners," said Alok Deshpande, oil analyst at Elara Capital. Mr Deshpande does not expect the Egypt crisis to have a major impact on supplies to India. However, he expects crude prices to move up in the interim.