18 June 2013 – Brent crude futures were barely changed around $105, holding not far off their strongest level in 10 weeks on mounting tensions in the Middle East, as investors remain cautious ahead of a Federal Reserve meeting.
The Fed, whose two-day policy-meeting starts on Wednesday, is under pressure to roll back some of the $85 billion in monthly bond purchases under its latest programme, after some advances in the US economy. Its three quantitative easing schemes have buoyed prices of gold and other commodities
Brent was up 15 cents at $105.62 a barrel early on Tuesday, having risen to $106.67 on Monday, its highest since 4 April. US oil added 15 cents to $97.92 after hitting a nine-month high near $99 a barrel in the previous session.
“What I’m expecting is some indication of a slow, measured tapering of the bond purchase programme by the Fed. It will cause some impact to markets at the start but I’m looking for minimmal slippage at least for oil prices,” said Carl Larry, president of the Houston-based Oil Outlooks and Opinions.
“In general any decision to taper would signal confidence in the ongoing recovery of the US economy, that is potentially an upside for markets depending on how investors take it.”
Global financial markets have been on edge since Fed Chairman Ben Bernanke suggested the central bank would be looking to taper its stimulus if the economy showed signs of improvement.
The oil market is also keeping an eye on a standoff over the civil war in Syria as world leaders lined up to pressure Russian President Vladimir Putin into toning down his support for Syrian President Bashar Assad on the second day of a G8 summit.
Although Syria is not key to global oil supply, investors are worried the civil war there could affect other countries in the Middle East and plunge the whole region into conflict
Any run-up on geopolitical risk would soon bump into a fundamental situation of ample supply and uncertain demand.
Stung by recent victories for Assad’s forces and their support from Hezbollah guerrillas, the United States said last week it would step up military aid to the rebels, including automatic weapons, light mortars and rocket-propelled grenades
“The market has certainly built in a risk premium into prices, and this should keep it supported despite fundamentals suggesting that there is more than enough oil out there to buffer a disruption to any kind of supply from the region,” Larry said.
“But until we see some clear consensus between the likes of Russia and the US we shouldn’t expect to see an end in sight in Syria and that keeps the risk of the conflict spilling over and drawing in other regional entitites much higher.”
US commercial crude stocks are expected to fall due to lower imports according to a preliminary Reuters poll done on Monday.