Oil price went to a one-month high yesterday after the
United States attacked a Syrian government airbase, killing six people,
rattling the oil-rich region.
US warships launched 59 Tomahawk cruise missiles at Shayrat Airfield on Thursday night in response to a chemical attack on civilians in the town of Khan Sheikhoun earlier in the week.
The toughest U.S. action yet in Syria’s six-year-old civil war has ramped up
geopolitical uncertainty in the Middle East. This supported oil futures, which
were on track for a three percent weekly increase on signs of higher U.S.
demand and lower product inventories.
“Oil markets are back in bullish mode after the setback of the previous weeks.
This news flow seems to bring geopolitical risks back on the radar,” said Frank
Klumpp, oil analyst at Landesbank Baden-Wuerttemberg, based in Stuttgart,
Germany.
The airstrike does not necessarily cut oil supplies from Syria, but may damp
investors’ appetite in the short term. The airstrike was strongly supported by
Saudi Arabia, the leading oil producer in the world, and the core leader of
Sunni Muslims in the world.
Vladimir Putin of Russia regarded the airstrike as an act of agreession, which
is considered to have strained US-Russia relations.
“Putin views the US strikes on Syria as aggression against a sovereign state in
violation of the norms of international law and on a made-up up pretext.
Washington’s step will inflict major damage on US-Russia ties,” Dmitry Peskov,
Putin’s spokesman said.
Angela Merkel and Francois Hollande, leaders of Germany and France, released a
joint statement in support of the attack against Assad’s regime.
“Assad bears full responsibility for this development. His continued use of
chemical weapons and mass crimes cannot go unpunished. This is what France had
asked in the summer of 2013, the day after the chemical attack in Ghouta,”
their statement reads.
The market could get a further boost when the Baker Hughes U.S. rig count is
released on Friday afternoon, if it shows a slower pace of increase in oil
drilling.
Although Syria has limited oil production, any escalation of the conflict feeds
fears about oil supplies due to the country’s location and alliances with big
oil producers in the region.
Oil, gold, foreign exchange and bond markets reacted strongly to the attack but
reversed some of the sharp moves after monthly U.S. employment figures came in
weaker than expected.
Brent crude futures were up 28 cents at $55.17 a barrel by 11:33 a.m. EDT (1533
GMT) after reaching an intraday peak of $56.08, the highest since March 7,
shortly after the U.S. missile strike was announced. U.S. West Texas
Intermediate (WTI) crude futures were up 37 cents at $52.07 a barrel, having
reached an intraday high of $52.94.
Oil came off session highs as U.S. economic data weighed on global markets.
Some analysts said the conflict in Syria had no bearing on oil fundamentals and
the political risk premium could vanish quickly.
“This might just be a speculative move higher because there’s nothing
fundamental that’s supporting this rise,” said Hamza Khan, head of commodities
strategy at ING.
Traders eyed news from Canada, where two oil sands producers have cut
production due to a shortage of synthetic crude following a plant fire.
“The production outages in Canada will … continue to have a price-supportive
effect,” said Carsten Fritsch, commodities analyst at Commerzbank.
In bearish news, non-OPEC producer Kazakhstan raised production last month
despite its pledge to cut output by 20,000 barrels per day in the first half of
2017.
By FESTUS OKOROMADU
