Brent holds above $115 amid Syria concerns
Singapore, September 4, 2013
Brent crude held above $115 a barrel on Wednesday, close to its highest in almost a week, as US lawmakers' support for military action against Syria rekindled worries over the possible impact on oil supply from the Middle East.
President Barack Obama won the backing of key figures in the US Congress, including Republicans, in his call for limited strikes on Syria to punish President Bashar Al-Assad for his suspected use of chemical weapons against civilians.
While Syria is not a key oil producer, investors are worried that a strike by Western forces against the country could spread unrest in the Middle East and disrupt supply from the region that pumps a third of the world's crude.
Brent crude for October delivery was at $115.79, up 11 cents by 0444 GMT and close to a peak of $116 hit on Tuesday, when prices ended with a gain of $1.35.
October US crude futures fell 19 cents to $108.35 a barrel after settling up 89 cents in the previous session.
"The US is likely to take some action in Syria," said Tetsu Emori, a commodity sales manager at Astmax Investments in Tokyo. "Oil prices should ratchet up."
Analysts from Bank of America Merrill Lynch and Societe Generale expect Brent to rise to $120-$130 a barrel in a limited strike situation, while a protracted war could boost oil by as much as $50.
Markets are already coping with a supply loss from Opec producer Libya as strikes at ports and pipelines have shrunk exports to around 100,000 barrels per day (bpd) - less than a tenth of capacity. Outages from the Middle East and Africa rose above 3 million bpd - some 3.5 per cent of global demand.
Sudan's decision to lift a threat to block oil exports from South Sudan provided some relief, although Juba's output at 200,000 bpd remained lower than before the conflict shut its entire production.
The pressure on Opec's spare capacity could peak in September on lower exports from Libya and Iraq, coinciding with a likely drop in total OECD petroleum inventories to their lowest since mid-2004, Goldman Sachs analysts led by Jeffrey Currie said in a note.
"Barring a more serious spillover from Syria into the broader region, the seasonal decline in oil demand in Saudi Arabia toward the end of the year and a gradual recovery in ex-Saudi Opec crude production levels will likely reduce the pressure on Opec spare capacity markedly," the bank said.
Oil supply has become as tight as when the International Energy Agency (IEA) ordered a rare release of strategic oil reserves during the civil war in 2011, raising talks of possible action from the OECD energy watchdog.
US commercial crude oil and gasoline inventories likely fell last week, a preliminary Reuters poll of six analysts showed.
Investors were also awaiting key jobs data from the United States later this week for clues on when the Federal Reserve will slow its massive bond-buying programme.
The Fed's decision has been complicated by the potential military strike on Syria that could upset global financial markets, analysts said. - Reuters