West Texas Intermediate crude advanced as U.S. President Barack Obama sought support in Congress for a military strike on Syria, bolstering concern that oil shipments from the Middle East will be disrupted.
Futures gained 0.8 percent after House Speaker John Boehner told reporters he will back the president’s call for action against Syria in response to the alleged use of chemical weapons. Obama stepped up lobbying today after requesting authorization from Congress on Aug. 31. Prices spiked earlier as Israel said it carried out a missile joint test launch with the U.S. in the Mediterranean Sea.
“The market is processing what appears to be a slow grind to military action against Syria,” said John Kilduff, a partner at Again Capital LLC, a New York hedge fund that focuses on energy. “There’s headline risk ahead of us. The reaction to the Israeli missile test is an example of what we will be seeing until the Syria situation is resolved.”
WTI crude for October delivery rose 89 cents to settle at $108.54 a barrel on the New York Mercantile Exchange. Trading was little changed from the 100-day average at 3:34 p.m. There was no floor trading yesterday because of the U.S. Labor Day holiday, and yesterday’s electronic transactions were booked today for settlement purposes.
Brent oil for October settlement increased $1.35, or 1.2 percent, to end the session at $115.68 a barrel on the ICE Futures Europe exchange. Trading was 26 percent above the 100-day average. The European benchmark grade traded at a $7.14 premium to WTI at today’s close.
Backing from Republican Boehner brings Obama closer to overcoming objections being raised by some House members who have questioned the evidence presented by the administration that the Syrian government was behind a sarin gas attack last month or whether the U.S. has a vital interest in the region. Republican Majority Leader Eric Cantor released a separate statement of support. House Democratic leader Nancy Pelosi, also said she’ll back Obama, giving it a bipartisan cast.
Obama is scheduled to leave today for Sweden and the Sept. 5-6 Group of 20 summit in Russia, hosted by Russian President Vladimir Putin, who has used his United Nations Security Council veto power to frustrate Western efforts to intervene in Syria.
“There’s been a lot of news, which the market is digesting,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.6 billion. “Oil is reacting to every headline out there, and we should expect to see a lot of volatility going ahead.”
An Israeli Defense Ministry statement called the test of its Arrow missile-interception system a success. The demonstration was a possible signal to Iran, Syria’s main regional ally, and dramatized the potential regional spillover of a U.S.-led assault.
“The Israeli test reminds people that the Syria issue hasn’t been put on hold because of the president’s announcement,” said Michael Wittner, head of oil market research at Societe Generale SA in New York. “It’s not Syria itself that we are concerned about, but what would happen if the violence spilled over into a major oil producer and exporter.”
The Middle East accounted for about 35 percent of global oil output in the first quarter of this year, data from the International Energy Agency show. Syria, which pumps limited amounts of crude, borders Iraq, the biggest producer after Saudi Arabia in the Organization of Petroleum Exporting Countries.
The pumping of crude from northern Iraq to the Turkish port of Ceyhan was halted at 7 a.m. local time, according to Boutros Maritime & Transport. Ceyhan is the major export location for oil supplies from northern Iraq and Azerbaijan. The Kirkuk-Ceyhan line runs through Iraq and southern Turkey near the Syrian border.
“Brent is stronger than WTI in large part because of the shutdown of the pipeline from Iraq to Ceyhan,” Kilduff said. “It’s more sensitive to supply issues in the Middle East.”
Libya is pumping 240,000 barrels of crude a day, according to the state-owned National Oil Corp.’s website. The OPEC member produced an average 575,000 barrels a day last month and 1.4 million barrels a day in March, according to a Bloomberg survey of analysts and producers.
“The market has already been all over the place today,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We are comfortably above $100 and should continue to move higher.”
Implied volatility for at-the-money WTI options expiring in October was 28.2 percent, up from 26.7 percent on Aug. 30, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 542,535 contracts as of 3:34 p.m. It totaled 467,855 contracts Aug. 30, 27 percent below the three-month average. Open interest was 1.86 million contracts.
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