Oil Jumps To Two-Year High On Syria Strike Fears

Syria was the central focus for oil markets on Wednesday, with futures rising to the highest level in more than two years despite bearish U.S. supply data and as one investment bank said Brent crude could surge as high as $150 a barrel amid the crisis.

U.S. crude oil for October delivery  added another 79 cents, or 0.7%, to hit $109.78 a barrel after surging almost 3% Tuesday on the New York Mercantile Exchange. Earlier on Wednesday the contract traded above $111 a barrel and even went over $112 a barrel at one point.

The Nymex crude contract hasn’t settled above $110 a barrel since May 2011.

October Brent crude  also extended gains, rising 69 cents, or 0.6%, to $115.05 a barrel, building on Tuesday’s 3.3% rally.

The gains continued a sharp upward trend after U.S. Secretary of State John Kerry said Monday that Washington believed the Syrian government had used chemical weapons against civilians.

With the U.S. weighing a possible strike against Syrian government, the Arab League on Tuesday called for an international response to the alleged gas attack on civilians, though they didn’t specifically endorse a unilateral U.S. action.

Meanwhile, a Syrian opposition coalition said in a statement Tuesday that the government had used phosphorus and napalm bombs against civilians in rural Aleppo a day earlier, Reuters reported, adding the claims couldn’t be verified.

Société Générale’s global head of oil research Michael Wittner wrote in a note Tuesday that under the bank’s base-case scenario, in which an attack begins in the next week, Brent crude could rise by another $5 to $10, sending it to the $120-$125 a barrel level.

Under SocGen’s “upside scenario,” which includes “a significant supply disruption in Iraq or elsewhere,” Brent could hit $150.

However, Wittner added that any price spikes likely wouldn’t last, as Saudi Arabia could make up for the supply disruptions, and many oil-importing nations have strategic reserves they could use.

Rivkin global analyst Tim Radford agreed that the gains were temporary but was more dismissive of the odds of a U.S. strike.

“It really is worst-case-scenario-type fear driving oil prices higher. And while the global press have been talking up a likely military strike by the West, it remains unlikely given the extremely sensitive nature of Syria’s political relationships,” Radford wrote in a note early Wednesday.

“Once certainty is restored by political leaders over the next few days, we should see speculative and fear-driven buying subside, leading to [Nymex] oil prices returning to levels prior to the U.S. Secretary of State John Kerry address on the Syrian chemical attacks, at around $107 a barrel,” Radford wrote.

Crude supplies climb in U.S.

The Syrian concerns trumped the bearish influence from a surprise gain for U.S. crude-oil supplies last week, according to American Petroleum Institute data out late Tuesday.

Reporting after the close of Nymex trade, the API said crude stocks rose by 2.5 million barrels for the week ended Aug. 23, confounding expectations for a drop of 250,000 barrels, as seen in a Platts survey of analysts.

October Nymex crude fell slightly after the API data release but soon erased those losses to continue their climb.

A separate weekly supply report from the U.S. Energy Information Administration — generally seen as more definitive — is due out later Wednesday at 10:30 a.m. U.S. Eastern Time.

Meanwhile, other energy futures saw gains Wednesday, with September gasoline  rising 2 cents, or 0.7%, to $3.06 a gallon, on top of its 8-cent rally on Tuesday.

According to the API numbers, gasoline stockpiles fell by 1.1 million barrels last week, trailing a projected 1.5-million-barrel drop from the Platts survey.

September heating oil gained 2 cents, or 0.5%, to $3.18 a gallon after making its own 8-cent advance the previous day.

In this case, the API data supported the upward move, with the report showing a negligible rise of 3,000 barrels for distillates — which include heating oil — against a projected 1-million-barrel rise in the Platts survey.

September natural gas  was flat at $3.53 per million British thermal units, after a 2-cent rise on Tuesday, with the contract due to expire at the close of Wednesday’s Nymex session.

Source : Marketwatch