Syria sends oil to 2-year high, $150 spike feared
Oil has jumped to a two-year high and could see Brent spike as high as $150 per barrel as US and western allies move towards a military strike on Syria.
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Brent October futures are above $115 per barrel and West Texas Intermediate blend (WTI) hit $110 on speculation unrest in Syria will disrupt oil shipments and supplies in the Middle East. For WTI its the highest price since May 2011.
The US and Britain are gearing up in a coordinated military action against
Syria, as both confirmed chemical weapons attacks were carried out
against civilians, something the Assad government denies.
The US-Syria standoff could send oil prices soaring, and Brent could ‘spike briefly’ to $150 a barrel if the US initiates a military attack on Syria, Societe Generale bank told Bloomberg on Wednesday.
US Defense Secretary Chuck Hagel has given the green light to
launch a strike against Syria, and is just waiting for the
directive from President Obama.
“The concern is that an attack on Syria will reverberate
through the region, increasing the spill over into other
countries and possibly resulting in a larger supply disruption
elsewhere,” Michael Wittner, the head of oil market research
in New York, said in an August 27 report.
Oil-production in Syria is low, but its geographical position poses a threat to disrupt neighboring pipelines and seaways. Turkey, its northern neighbor, is home to 2 major pipelines that transport Iraqi oil to Europe and Central Asia.
A conflict in Syria would benefit more ‘detached’ oil producing countries, like Saudi Arabia, which would be able to capitalize on supply chokes in Iraq and Iran. Saudi Arabia has the capacity to produce 9.8 million barrels of crude per day.
Simultaneous turbulent politics to the south in Egypt could also
threaten global supply, as Egypt hangs in an unresolved state of
emergency, fanning fears Suez Canal operations could be disrupted. A crucial
trade route, the canal handles 800,000 barrels of crude a day and
the Suez-Mediterranean Pipeline, which also runs through Syria,
is a regional transport staple.
A US-led strike would hook oil-rich Iran, a Syrian ally and OPEC
member, into the conflict. Another big geo-political concern for
oil investors is spill over into Iraq, a direct neighbor of Syria
that produced 3 million barrels of crude per day in 2012. Many
Syrian refugees have sought safety in Western Iraq.
Hawkish military hints of intervention in Syria have sent prices
up despite a 2.47 million barrel increase in oil supplies last
week, as estimated by the American Petroleum Institute.
Syria’s foreign minister has warned against military strikes and
said his country’s defenses will ‘surprise’ the world.
A US-led missile strike seems likely in the next week, according
to most political commentators.
Russia’s stake in expensive oil
Russia, an oil and natural gas dependent economy, and friend of
numerous Middle Eastern oil producing states, has said it doesn’t
plan to go to war with anyone over Syria, and the US may be
jumping to conclusions.
Russia’s economy counts on oil prices above $100 in order to adequately fund the budget, of which oil and gas revenue provide 50 percent of funds.
The country's reliance on oil prices in world markets makes it
vulnerable to a surge in pricing, as the 2008 bust/boom dramatic
rise and fall demonstrated. Russian officials, as well as
investors, should fear any dramatic increases set off by Syria.
Crude oil prices in the summer of 2008 hit a record high of $147
per barrel, and then by December 2008, the bubble had burst and
Brent was trading near $40 a barrel.
Chinese consumption and increased worldwide GDP, coupled with
Syrian unrest, could create a demand bottleneck, and another
bust/boom effect.
