Traders of crude oil and natural gas work at the New York Mercantile Exchange.… (Bebeto Matthews, Associated…)
Reporting from Washington and Los Angeles — Egypt has never loomed large in the grand scheme of the global economy, but the political turmoil there has sent tremors through world markets and triggered fears of severe and long-lasting economic damage if the crisis deepens in this volatile, energy-rich region.
World financial markets regained their composure Monday, suggesting that concerns might be easing about the anti-government protests in Egypt, at least temporarily.
But fears were underscored in the latest surge in oil prices: The U.S. benchmark West Texas Intermediate crude oil closed at $92.19 a barrel Monday, up $2.85 or 3.2% — the highest price since October 2008. Combined with Friday's price hike, oil has jumped about 8%.
In London trading, Brent crude, which is used to price oil in Europe and Asia, settled at $101.01 a barrel, up $1.59. It was the first time since 2008 that Brent oil closed above $100.
The crisis in Egypt has raised the specter of speculators pushing prices to new heights, with all the consequences that could have for global inflation and economic growth and — for Americans — economic recovery.
After ending 2010 at levels not seen in three years, the U.S. average cost of a gallon of regular gasoline fell 0.9 cent to $3.101 while the California average crept up 0.7 cent to $3.364, according to the Energy Department's weekly survey of service stations. A year earlier, the U.S. average was 44 cents lower and the California average was 39 cents lower.
Gasoline prices probably will rise if the latest oil price increases stick, analysts said. The industry rule of thumb is that every $10 jump in the cost of a barrel of oil translates into a nearly 25-cent increase per gallon at the pump.
The U.S. economy has recently begun to gather some steam, with many consumers coming out of their cocoons after the long recession. But just as the debt problems last year in tiny Greece exposed the wider problems and linkages of the euro region — sharply setting back global markets and the U.S. recovery — the big concern is that the popular uprisings that have struck Tunisia and now Egypt and Yemen will spread to the biggest oil states in the Persian Gulf region.
As an oil producer, Egypt is a minor player. Yet it controls one of the world's great transit points for oil and international trade, the 120-mile Suez Canal. Every day about 3 million barrels of oil — or about 3.6% of the world's crude production — moves through the Suez Canal or by overland pipelines in Egypt, according to the U.S. Energy Department, which recently ranked the canal the world's third-worst energy shipping chokepoint.
So far, analysts and Egyptian officials have reported no disruptions to the canal, although they have warned of possible delays.
"The Red Sea is really nothing more than a lake, and Saudi Arabia is on the other side. What happens if oil supplies are disrupted?" said Fadel Gheit, senior energy analyst for Oppenheimer & Co. in New York. "We could be talking about $150-a-barrel oil, fed by pure speculation."
Bruce Bullock, executive director of Southern Methodist University's Maguire Energy Institute, agreed, even though both he and Gheit said oil could be rerouted — at much greater expense — around the horn of Africa and that the impact of a canal closure could be temporary.
At this point, analysts also don't see contagion spreading and causing serious political unrest to such major oil producers as Saudi Arabia and Kuwait.
Unlike Egypt, "they have an awful lot of money," said Mohsin Khan, a senior fellow at the Peterson Institute for International Economics. "Unemployment is not that big an issue where it leads to protests, because governments can subsidize unemployment.... You can sort of buy off the population, the protests."
After falling Friday, stock prices in the U.S. moved higher Monday amid encouraging U.S. economic news. Consumer spending rose 0.7% in December, topping the 0.5% consensus forecast. And an index of manufacturing activity in the Chicago area jumped to a 22-year high last month.
The Dow Jones industrial average gained 68.23 points, or 0.6%, to 11,891.93. The Dow skidded 166 points Friday. European stocks on Monday also shrugged off the turmoil in Egypt.
"The U.S. economy's fundamentals are improving, and that's the most important thing to investors," said Jason Trennert, chief investment strategist at Strategas Research Partners in New York.
The relative stability in the financial markets reflected the vastly improved investor sentiment that has set in since last year's financial crises in Greece and other European countries, which had caused world markets to swoon.
"Globally we have a much better outlook now than one year ago," said Adolfo Laurenti, an economist at Mesirow Financial in Chicago.
At the same time, Khan and other Middle East experts say it's hard to tell where the deadly street protests will lead. Egypt, while economically tiny, is the most populous of the Arab countries and it has long played a pivotal role in the Israel and Arab conflict.
Yet Egypt also has been a tinderbox, and analysts remain concerned that its trouble could ignite other long-festering unhappiness in the region.
A London-based Middle East expert for Capital Economics, Said Hirsh, says global investors are overreacting to the crisis in Egypt. He thinks cooler heads will prevail and that the markets will calm down.
But Hirsh also worries that the longer the protests last, the more people will see things as unpredictable — inviting speculators and others to buy up oil futures.
"If it carries on like this," he said, "it will be a self-fulfilling prophecy."
Times staff writers Tom Petruno and Walter Hamilton in Los Angeles contributed to this report.