Violence in Egypt and across the Middle East is pushing oil prices upward, as investors fear disruptions to supply in a region home to nearly a third of the world's oil output. The spike in oil could mean slightly higher gas prices in the short term, analysts said, but a stronger supply of North American oil should help protect from long-term shocks.
"The increase in US oil production is contributing to increased world supply, in which we see demand growing," said Andrew Lipow, president of Lipow Oil Associates in Houston. "Although it may not insulate us from oil prices rising, it does enable us to reduce our dependence on crude oil imports from the Middle East."
West Texas Intermediate crude oil was up 48 cents to $107.33 a barrel Thursday, rising for the fifth day in a row. Brent crude was up 91 cents to $111.11.
Clashes between the Egyptian military and supporters of ousted President Mohamed Morsi caused at least 525 fatalities Wednesday, and unrest continues in Cairo and across the country. Egypt is not a major oil exporter but controls the Suez Canal, a major route for shipping oil from the Middle East to European markets.
The canal, along with the region's SUMED pipeline, together handled 3.8 million barrels per day of crude oil and other petroleum products in 2011, according to the US Energy Information Administration (EIA). Those routes allow oil tankers a more direct route to and from Europe, bypassing the extra 6,000 miles it takes to go around Africa.
"[T]he fear is that while the violence is unlikely to shut down the Suez Canal, it could spread to other countries and shut down their production," Mr. Lipow said in a telephone interview.
That's the case in Libya, where strikes forced the closure of two main crude oil export terminals earlier this week. Production in the country has been spotty over recent months due to clashes between security officials and militias. Disputes between Sudan and Southern Sudan have also constricted the global flow of oil.
In the US, crude oil production increased to an average of 7.5 million barrels per day in July 2013, according to the EIA. That's the highest monthly level of production in the nation since 1991 and is largely the result of advanced drilling techniques unlocking previously unobtainable sources of oil. Meanwhile, a slow economy and efficiency gains have pushed demand down.
Those forces don't completely insulate the US from global oil markets, but analysts say it can serve as a buffer. And with peak driving season wrapping up after Labor Day, US consumers may be in for some relief at the gas pump.
"[T]here’s a good chance somewhere in the next 60 days, people in some western states will be paying 75 cents or a dollar less [for gas] than the same time last year," said Tom Kloza, chief oil analyst for GasBuddy.com, a website that tracks retail gasoline prices.
The wild card is weather in the Gulf of Mexico, which accounts for nearly a quarter of US oil production. Hurricanes in the region can disrupt offshore production.
"So far we’ve been very lucky," Mr. Kloza said in a telephone interview.