West Texas Intermediate crude surged to the highest level since May 2011 on concern that conflict in Syria may spread and threaten oil supplies from the Middle East. Brent climbed to a six-month high in London.
Futures gained as much as 3 percent in New York, while gasoline extended its biggest jump in six weeks. The U.S., France and Britain moved closer to a military strike as they laid the legal groundwork to justify action after Syria allegedly used chemical weapons. Brent may rise to $150 a barrel, from about $116 today, if conflict disrupts supply, Societe Generale SA (GLE) said. Libya said output may have dropped below 200,000 barrels a day, the lowest since the 2011 uprising against Muammar Qaddafi.
“The geopolitical risk in Syria continues to dominate the market,” said Myrto Sokou, an analyst in London at Sucden Financial Ltd., a commodities broker. “We expect the recent upside rally in the oil market to continue” amid the potential for Middle Eastern supply disruptions, she said in an e-mailed note today.
WTI for October delivery rose as much as $3.23 to $112.24 a barrel in electronic trading on the New York Mercantile Exchange, the highest intraday price since May 3, 2011. It was at $110.36 at 1:06 p.m. London time. The volume of all futures traded more than twice the 100-day average. The contract increased $3.09 to $109.01 yesterday, the highest close since Feb. 24 last year. Prices are up about 20 percent in 2013.
Brent for October settlement advanced as much as $2.98, or 2.6 percent, to $117.34 a barrel on the London-based ICE Futures Europe exchange after settling yesterday at the highest since Feb. 25. The European benchmark crude was at a premium of $5.34 to WTI from $5.35 yesterday.
Gasoline for September rose as much as 6.92 cents, or 2.3 percent, to $3.1033 on the Nymex after an increase of 2.8 percent yesterday that was the biggest since July 12.
The prospect of conflict is causing oil and U.S. equities to move in opposite directions by the most in almost two years. While WTI rallied 2.9 percent yesterday, the Standard & Poor’s 500 Index (SPX) slid 1.6 percent, resulting in a 4.5 percentage-point divergence that was the widest since November 2011, data compiled by Bloomberg show.
WTI call options surged as futures rallied, with the implied volatility of October calls protecting against a 10 percent rise in futures prices jumping to 34.84 percent at 1:08 p.m. from 21.70 on Aug. 26.
Brent may “spike briefly” to $150 a barrel if the conflict in Syria spreads to other parts of the Middle East, causing supply cuts, Societe Generale said in a report e-mailed today. A U.S.-led attack on Syria is possible within the next week, the bank predicted. Brent traded at $147.50 on July 11, 2008, the highest intraday price on record.
“The concern is that an attack on Syria will reverberate through the region, increasing the spillover into other countries and possibly resulting in a larger supply disruption elsewhere,” said Michael Wittner, Societe Generale’s head of oil market research in New York. Even if flows aren’t disrupted, prices may climb to as high as $125 in coming days, he said.
Any armed response against Syria would focus narrowly on the nation’s weapons capabilities and wouldn’t aim at deposing President Bashar al-Assad, U.S. and U.K. officials said. The Middle East accounted for 35 percent of global oil output in the first quarter of this year, according to data from the International Energy Agency.
“The market is really getting nervous,” analysts led by David Wech at JBC Energy GmbH, a researcher in Vienna, said in a note today. “The rhetoric emerging from key figures yesterday, and the evident mobilisation of assets in the Eastern Mediterranean region, would suggest that action of some kind is imminent.”
Libya’s oil production fell to one-eighth of its capacity as protests over pay and allegations of corruption spread to fields operated by Eni SpA (ENI) and Repsol SA, according to officials at National Oil Corp.
Brent’s rally may stall as a technical indicator shows futures may be rising too quickly for further gains to be sustainable. The 14-day relative strength index yesterday surged above 70 for the first time since February, signaling the market is overbought, according to data compiled by Bloomberg. Today’s reading is higher than 75.
U.S. gasoline inventories declined by 1.13 million barrels in the week ended Aug. 23, the industry-funded American Petroleum Institute said yesterday. An Energy Information Administration report today may show supplies slid by 1.38 million, according to the median estimate of 12 analysts surveyed by Bloomberg News.
Crude stockpiles increased 2.47 million barrels, the API said. The EIA, the Energy Department’s statistical arm, will probably report a gain of 750,000 barrels, the survey shows.
The API in Washington collects supply information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA for its weekly survey.
Hedge funds had cut bullish bets on WTI in the week to Aug. 20, data from the Commodity Futures Trading Commission showed on Aug. 23. Funds and other speculators had boosted bullish bets on Brent in the same period, data from the ICE Futures Europe showed on Aug. 26.
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