OREANDA-NEWS. February 02, 2011. Crude for March delivery slid USD 1.42 to USD 90.77. WTI is up 18% from a year ago. Brent oil for March settlement traded up 73 cents, or 0.7%, to USD 101.74 yesterday, the highest settlement since Sept. 26, 2008.

Oil futures closed around USD 91/bbl on the NYMEX Tuesday after dipping from a 2-year high as concern eased that massive anti-government protests in Egypt will disrupt vital flows through the Suez Canal. US oil futures declined 1.5% yesterday after canal officials said traffic is moving normally through the waterway that carries more than 2.2 mn bpd. OPEC Secretary-General Abdalla el-Badri said on January 31 that the cartel would boost output if the protests interrupted transportation.

As we can see, the market is abuzz with rumors the Suez Canal has not been disrupted and there is only a slim chances of contagion spilling over from Egypt to other big oil producers. This accounted for the sell-off we saw in WTI, while Brent refused to head south.

The ongoing power struggle has shaped up as follows: Mubarak said he will not stand down until elections due in September, angering the hundreds of thousands gathered in Cairo’s Tahrir Square, who demand an immediate end to his regime.

The American Petroleum Institute reported that US crude stockpiles showed a build of 3.77 mn bbl to 346.5 mn last week. We think the mid-week Energy Department report due out later today could show inventories climbed by 2 mn bbl, according to the consensus forecast. Gasoline stocks rose 3.9 mn bbl, while distillate stocks, which include heating oil and diesel fuel, fell 1.1 ml bbl, the API said.

In our opinion, Brent appears to be more vulnerable than WTI and although there have been no serious problems related to Middle East oil flows, we would like to note that there have been major disruptions in Egypt's Alexandria and Damietta ports due to staff shortages and an absence of customs officials. Therefore the market for Brent still remains quite jittery.

Moving forward, we believe the outlook for oil futures remains uncertain at this point. The chances of a peaceful outcome to the political crisis also look nebulous, as both the protestors and Mubarak show no signs of willingness to compromise. Thus, despite the possibility of a pullback on profit-taking in both WTI and Brent, we expect a USD 10+ premium on oil future until the situation is defused in line with the regime-change scenario.