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By Vicki Schmelzer NEW YORK (MNI) - Mideast uncertainty prevented a larger recovery of world financial markets Monday, with oil prices as a result breaking to new 27-and-a-half month highs, a bit shy of $93 a barrel.
Ahead of a "million person" march planned by Egyptian protestors for Tuesday, market players were reluctant to exit the safe-haven trades put on Friday or at least were not ready to reenter into the more risk friendly trades that were popular for most of last week. Even if Tuesday's march in Cairo passes uneventfully, finding a solution to Egypt's problems will not take place overnight, and this is likely to keep oil prices firm in the short term, analysts said. "The historic political shake-up in Egypt will take time to resolve itself," said Ashraf Laidi, chief market strategist at CMC Markets.
He warned to expect "uncertainty" at least until September 2011, when presidential elections are slated to take place.
"Until then, expect intermittent clashes with authorities as long the Street sees no moves progress towards transparency in the upcoming electoral process," Laidi said.
Despite the escalating risks stemming from Egypt's political upheaval, "there is an important comforting element of reality, which would reduce the threat of a full-blown regional crisis and emerging market contagion," he noted.
The Egyptian military has been largely "hands off" during the "current political transition" and "this improves its credibility in preserving civil order, protecting resources, the Suez Canal, banks and key businesses," Laidi said.
The military is well aware of the need to keep operations moving smoothly at the Suez Canal.
The Suez Canal "is not only a vital source of Egypt's foreign currency receipts, but also ensures the supply/movement of crude oil," Laidi said. In an attempt to reorganize his government, President Hosni Mubarak earlier replaced his interior minister in charge of the police, but also left some key ministers in place, according to a report in the New York Times.
His actions did little to appease the thousands of protestors, who gathered in Liberation Square for a seventh day, the report said.
Opposition groups have said they will continue protests until the president is forced to step down.
The Egyptian army has said it would not use force/violence against protesters Tuesday, according to several media reports.
The market is watching closely for signs of spillover effects for other Mideast nations.
Saudi Arabia's Tadawul index posted the region's largest drop (6% decline seen Saturday) in response to events unfolding in Egypt, said Shadi Hamid, director of research at the Brookings Doha Center and a fellow at the Saban Center for Middle East Policy at the Brookings Institute.
"How much will it dip if Saudis start holding sit ins?" he asked.
Global investors "should be worried," Hamid stressed.
"In a country like Egypt, full-scale violence initiated by a fragile regime would undermine the little stability that remains," he said.
While the business community and the Obama administration might prefer to see the current regime stay in power, albeit "under better behavior," the Egyptian people seem to have other ideas, he said.
"Democracy -- with the accountability, popular legitimacy and peaceful resolution of conflict it so often brings -- is the only avenue to long-term stability," Hamid said.
Tuesday's Egyptian march, along with protests taking place in other Middle-eastern countries, such as Yemen, will be watched closely for signs of contagion.
"Leaders in other Middle Eastern countries have certainly taken note of contagion risks," observed Win Thin, senior currency strategist at Brown Brothers Harriman.
"Why else would Yemen have announced that 500,000 families be added to its social security program and ordered the creation of a fund to support university graduates with jobs? Or why would Syrian President al-Assad acknowledged that political reforms are needed in his country?" he said.
Regime change in Egypt may be one thing, but regime change in a country like Saudi Arabia would be far more difficult and potentially market moving, analysts said.
"Finding a successor to King Abdullah is going to be much harder than (in 2005) after King Fahd died," CMC Market's Laidi noted.
With several Saudi princes expected to vie for the position, "this is going to be a battle," he said.
At age 86, King Abdullah is one of the world's oldest reigning monarchs. In 2010, there were various reports of the King's health problems, with speculation about who would replace him. NYMEX light sweet crude oil futures were trading up $2.79 at $92.13 per barrel Monday afternoon, after trading in a $88.40 to $92.84 (new 27-and-a-half month high) range.
The front contract topped out at $92.58 January 3 before closing at $91.55.
In subsequent sessions, after crude tried unsuccessfully to revisit that level, market sentiment turned negative, with oil bottoming out last Friday at $85.11, before rising Egyptian tensions propelled prices higher (settled Friday at $89.34).
From a technical perspective, oil rejected its 100-day moving average (at $84.59 Monday) and closed back above its 55-day moving average (at $87.93 Monday) Friday.
This, combined with Monday's break above the January high, bodes well for further gains toward the psychological 100 level, analysts said.
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