Brent continues surge on Syria

Oil prices28 August 2013, News Wires – Brent crude surged to a six-month high on Wednesday as western countries prepared to attack Syria, raising concerns over the security of oil supplies across the Middle East, which pumps a third of the world’s oil.

The United States and its allies are readying for air strikes against the forces of President Bashar al-Assad, blamed for poison gas attacks last week. But the timing of any action was unclear.

A prolonged outage at several Libyan oilfields also underpinned prices, with Brent gaining 4% and the US benchmark 3% so far this week.

“Though it may have taken some time for the oil market to respond to the threat of a military strike against Syria, it has now done so with a vengeance,” Commerzbank said in a research note.

Brent was at $115.80, up 1.44 at 1240 GMT after earlier reaching a six-month high of $117.34 a barrel. US crude rose $1.11 to $110.12, after hitting an intraday peak of $112.24 – its highest since May 2011.

“The latest price rise raises the question of just how much the price can continue to climb. This will doubtless depend on how events play out in the region,” said Commerzbank.

CMC Markets chief market analyst Ric Spooner commented to Reuters: “Assuming they take action, it’s likely for the risk premium to be built in [to oil prices] for quite a while.”

The risk premium could vary from $10-$25, Spooner said, adding that if the situation worsens Brent could rise to $119-$126 and US crude could move toward $114-$115.

Oil supply from OPEC producer Libya has already been reduced to a trickle after an armed group shut down a pipeline linking its largest western oilfields to the ports.

Total Libyan oil output amounts to just under 200,000 barrels per day, compared with pre-war daily levels of around 1.6 million, according to a Reuters estimate, the worst disruption since the civil war in 2011.

“While the headlines are currently on Syria and the speculative extrapolations about the Suez canal, the Gulf of Iskenderun or the Strait of Hormuz, there is currently a supply disruption in Libya as real as in 2011,” Olivier Jakob of Petromatrix in Zug said.

Oil could also get a boost if the US Federal Reserve decides to start paring its bond purchases later than the anticipated September timeline.

“Another potential outcome from Syria is that if it does deteriorate, it could make the Fed less likely to act in September,” Spooner said.

Investors awaited weekly oil inventory data from the United States later in the day for clues on demand in the world’s top consumer.

US crude stocks rose last week while gasoline inventories declined and distillate stocks increased, data from industry group the American Petroleum Institute showed.

– Upstream

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