West Texas Intermediate crude rose to the highest level in 18 months on speculation that tension in Syria will disrupt Middle East supplies.
Prices gained 2.9 percent as Foreign Minister Walid al-Muallem said that Syria’s defenses will “surprise” the world should the U.S. and its allies attempt military strikes. Western powers told the Syrian opposition to expect a strike against President Bashar al-Assad’s forces within days, Reuters reported, citing sources who attended a meeting.
“The geopolitical tension in Syria certainly escalated one notch higher and it’s a significant notch,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “It’s the implication of what a broader conflict in Syria would mean to key suppliers in that region. The market simply positioned itself long and waited for the next turn of events.”
WTI for October delivery climbed $3.09 to $109.01 a barrel on the New York Mercantile Exchange. It was the highest settlement since Feb. 24, 2012, and the largest percentage gain since May 2. Trading was 20 percent above the 100-day average for the time of day at 2:38 p.m.
Prices were little changed after the American Petroleum Institute reported U.S. crude inventories increased 2.47 million barrels last week. The October contract increased $2.97, or 2.8 percent, to $108.89 a barrel in electronic trading at 4:36 p.m. It traded at $108.91 before the report was released at 4:30 p.m.
Brent for October settlement increased $3.63, or 3.3 percent, to $114.36 on the ICE Futures Europe exchange, a six-month high. Volume was 58 percent above the 100-day average. The European benchmark’s premium to WTI widened to $5.35 from $4.81.
Syria is “hearing the drums of war all around us,” al-Muallem said at a televised news conference in Damascus. The government hasn’t obstructed the United Nations probe into its alleged use of chemical weapons, he said, adding that the U.S. may be carrying out psychological warfare.
Secretary of State John Kerry said yesterday that President Barack Obama will hold Syria accountable for the “indiscriminate slaughter” of its own people with chemical weapons. The evidence is “undeniable” that chemical weapons were used against residents of a Damascus suburb last week and that President Bashar al-Assad’s regime has the toxic weapons and the ability to deploy them, he said.
The Obama administration is focusing on legal and political justification for a limited military strike as a demonstration of international censure against Syria’s use of chemical weapons, according to a U.S. official. Any action would have a narrow scope aimed at military facilities, other infrastructure and would not target Assad.
“It’s not the question of if they are going to intervene, but just when and how,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. “The issue is whether such intervention will pull in neighboring countries.”
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, according to Bloomberg estimates. Syria itself produced just 164,000 barrels a day of the 28.3 million pumped in the Middle East last year, according to BP Plc’s Statistical Review of World Energy.
“Syria itself is not important for oil,” said Soozhana Choi, Deutsche Bank AG’s head of energy research in Washington. “Prices are up because of the broader ramifications of an attack. There are concerns about what Syria’s allies do in response to an attack on the Assad regime. There is a worry that Iran may shelve negotiations over its nuclear program in response.”
Iran, a longtime Syrian ally, warned that a U.S. attack on Syria would drag the whole region into the conflict. Any use of military force in Syria will “engulf the whole region,” Foreign Ministry spokesman Abbas Araghchi told reporters in Tehran today, in televised comments. Russia also warned against an attack on Syria.
“The real risk is if Syria decides to retaliate in any kind of way, or in an even worse scenario, if Iran gets pulled in or Russia gets pulled in or one of Assad’s allies,” Walker said. “We are going to see the price really shoot up.”
WTI also rose as Libya National Oil Corp. Chairman Nuri Berruien said the nation’s oil output may have dropped below 200,000 barrels a day amid protests, the lowest level since the 2011 uprising against Muammar Qaddafi. The North African nation’s export capability has been crippled since members of the Petroleum Facilities Guard seized control of terminals last month to press for better working conditions.
Implied volatility for at-the-money WTI options expiring in October was 25.1 percent, up from 21.2 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 654,184 contracts as of 4:37 p.m. It totaled 297,359 contracts yesterday, the lowest level since Dec. 31 and less than half the three-month average. Open interest was 1.83 million contracts.