West Texas Intermediate crude rose to a two-year high as Russian President Vladimir Putin said his nation will assist Syria if it’s attacked, raising concern that escalating tension will disrupt Middle East oil exports.
Prices climbed 2 percent. Putin said that Russia may resume deliveries of advanced S-300 anti-aircraft missiles to Syria if the U.S. President Barack Obama carries through on a threat to punish Syrian President Bashar al-Assad for allegedly using chemical weapons against civilians. Crude also gained on speculation that the Federal Reserve will limit its stimulus reduction following slower-than-expected jobs growth.
“The involvement by Russia could escalate things and take it beyond Syrian borders,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “The situation in Syria is fluid and that has the market concerned. The disappointing jobs numbers probably make people thinking that Fed tapering might be delayed.”
WTI for October delivery gained $2.16 to $110.53 a barrel on the New York Mercantile Exchange, the highest settlement since May 3, 2011. Prices advanced 2.7 percent this week. Volume of all futures was 2.5 percent below 100-day average at 3:19 p.m.
Brent for October settlement rose 86 cents, or 0.7 percent, to end the session at $116.12 a barrel on the ICE Futures Europe exchange. The volume of all futures traded was 1.3 percent below the 100-day average.
The European benchmark crude was at a premium of $5.59 to WTI, compared with $6.89 yesterday. WTI increased more than Brent after the U.S. reported yesterday that inventories at Cushing, Oklahoma, the delivery point for New York futures, decreased 1.83 million barrels last week to 34.8 million, the lowest level since February 2012.
“WTI is reacting to consistent inventory draws in Cushing, Oklahoma,” said Soozhana Choi, Deutsche Bank AG’s head of energy research in Washington. “Geopolitical concerns are having a big impact on the oil market.”
Russia, one of Assad’s main international allies, sent an amphibious assault ship to join its forces off the Syrian coast in the east Mediterranean, Interfax news agency reported.
“Will we help Syria? We will,” Putin told reporters today after discussing the Syrian issue with Obama and other world leaders at the Group of 20 summit in St. Petersburg, Russia. “We are already helping them with weapons and we are cooperating in the economic and humanitarian spheres.”
There’s an increasing global consensus that Syria must be confronted over its use of chemical weapons, Obama said during a news conference at the close of the summit. The president said that he plans to make his case in an address to the American people next week.
He is seeking approval from Congress before taking action against Syria. The Senate Foreign Relations Committee voted Sept. 4 for a restricted operation, clearing the way for consideration by the full Senate. U.S. lawmakers are scheduled to reconvene on Sept. 9 after a five-week break.
“Geopolitical issues have elevated both WTI and Brent,” said Michael Peterson, managing director and senior equity analyst at MLV & Co. in Houston. “It’s in no one’s interest to see this spiral out of control.”
The Middle East accounted for about 35 percent of global oil production in the first quarter of this year, according to the International Energy Agency. Syria borders Iraq and is near Iran, countries that together hold almost a fifth of the output capacity from the Organization of Petroleum Exporting Countries, Bloomberg estimates show.
Prices also climbed as the Labor Department said non-farm payrolls grew 169,000 last month, less than 180,000 median forecast of 96 economists surveyed by Bloomberg. The move followed a revised 104,000 rise in July that was smaller than the initial estimate of 162,000.
The unemployment rate, derived from a survey of households rather than employers, dropped to 7.3 percent, the lowest level since December 2008. The participation rate, which indicates the share of working-age people in the labor force, declined to 63.2 percent, the least since August 1978, from 63.4 percent.
The weaker data come as Fed officials, who meet Sept. 17-18, are debating whether the economy and job market have improved enough to warrant trimming bond purchases.
“Any tapering is going to be very gradual and very cautious,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “It should be supportive for crude prices. This report shows how fragile the modest recovery in the labor market is.”
Chicago Fed President Charles Evans, a policy voter who has consistently supported stimulus, said today in a speech in Greenville, South Carolina, that the Fed shouldn’t taper its $85 billion in monthly bond buying until inflation and economic growth pick up.
Implied volatility for at-the-money WTI options expiring in October was 25.6 percent, up from 25.4 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 534,452 contracts as of 3:19 p.m. It totaled 387,047 contracts yesterday, 39 percent below the three-month average. Open interest was 1.87 million contracts.
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