Crude oil surges to 14-month high on Egypt turmoil

Crude oil futures rallied sharply on Wednesday to hit the highest level since May 2012, as concerns that political unrest in Egypt would spread to major oil-producing countries in the Middle East boosted prices.

Investors also looked ahead to closely-watched weekly supply data on stockpiles of crude and refined products from the U.S. Energy Information Administration later in the day.

On the New York Mercantile Exchange, light sweet crude futures for delivery in August traded at USD101.20 a barrel during European morning trade, up 1.6% on the day.

New York-traded oil prices rose by as much as 2.5% earlier in the session to hit a daily high of USD102.16 a barrel, the strongest level since May 4, 2012

Oil prices rose sharply on Tuesday after Egyptian President Mohammed Morsi rebuffed the military’s ultimatum to comprise with protesters or relinquish power.

Market players were concerned that the escalating tensions would lead to the closure of the Suez Canal, which transports approximately 2 million barrels of crude oil a day from northern Africa to the U.S. 

The U.S. Energy Information Administration identified the Suez Canal as one of seven “world oil transit chokepoints” and an “important transit corridor for world oil markets” in its 2012 Energy Outlook report.

Oil traders were also awaiting data from the U.S. government on oil and fuel supplies later in the day to gauge the strength of demand from the world’s largest oil consumer.

The report was expected to show that U.S. crude oil stockpiles declined by 2.3 million barrels last week, while gasoline inventories were forecast to rise by 0.6 million barrels.

After markets closed Tuesday, the American Petroleum Institute, an industry group, said that U.S. crude inventories fell by 9.4 million barrels last week, blowing past expectations for a decline of 2.7 million barrels.

Gasoline stocks declined 0.2 million barrels, compared to expectations for a 0.4 million barrel increase.

Oil traders also looked forward to this week’s highly-anticipated U.S. nonfarm payrolls data for indications of how the recovery in the U.S. labor market is progressing.

Any improvement in the U.S. economy was likely to reinforce the view that the Federal Reserve will begin to taper its bond purchase program in the coming months.

The Fed’s stimulus program is viewed by many investors as a key driver in boosting the price of commodities as it tends to depress the value of the dollar.

The U.S. is the world’s biggest oil consuming country, responsible for almost 22% of global oil demand. 

Elsewhere, on the ICE Futures Exchange, Brent oil futures for August delivery rose 0.75% to trade at USD104.77 a barrel, with the spread between the Brent and crude contracts standing at USD3.57 a barrel, the narrowest level since December 2010.

The gap between the contracts has been on the decline in recent weeks, amid an improving production outlook in the North Sea and indications of declining stockpiles at Cushing, Oklahoma, the delivery point for Nymex oil futures.