Crude Rises to Four-Month High on Middle East Tension

West Texas Intermediate crude rose to a four-month high after President Barack Obama was said to authorize arming Syrian rebels groups, ratcheting up tensions in a region home to about a third of the world’s oil supply.

Prices capped a second weekly gain after a U.S. official familiar with the decision said Obama is issuing a classified order to the Central Intelligence Agency to provide small arms and ammunition to the Syrian opposition. The official asked not to be identified. Yesterday, the administration said it had confirmed the use of chemical weapons by President Bashar al-Assad’s forces during the civil war.

“We are closing the week out and no one really wants to be short crude oil with escalating tension in the Middle East,” said Bill Baruch, a senior market strategist at in Chicago. “The least resistance is higher.”

WTI for July delivery climbed $1.16, or 1.2 percent, to $97.85 a barrel on the New York Mercantile Exchange, the highest settlement since Jan. 30. The volume of all futures traded was 28 percent above the 100-day average for the time of day at 4:01 p.m. Prices increased 1.9 percent this week.

Brent for August settlement increased 98 cents, or 0.9 percent, to end the session at $105.93 a barrel on the London-based ICE Futures Europe exchange. Volume was 25 percent below the 100-day average for the time of day.

Brent’s premium to WTI for August delivery widened to $7.86 from yesterday’s $7.56 based on July contracts.

WTI “just broke this year’s high, and the rally is taking on the momentum of itself,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Syrian Opposition

Obama’s calculus on Syria has shifted as support for Assad from Russia, Iran and Hezbollah has reversed opposition gains. Iran is OPEC’s sixth-biggest oil producer.

“It’s particularly urgent right now in terms of the situation on the ground, in some respect, because we have seen Hezbollah and Iran increase their own involvement,” Ben Rhodes, Obama’s deputy national security adviser, told reporters on a conference call yesterday. “That has added an element of urgency.”

Syria borders Iraq and is near Iran, countries that together hold almost a fifth of the Organization of Petroleum Exporting Countries’s output capacity, 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.

Risk Premium

Oil is “padding the geopolitical risk premium given the U.S. decision to support the Syrian rebels, with the market fearing a broadening of the conflict rather than containment,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York, in an e-mail.

Rhodes said yesterday that Assad’s forces had used the nerve gas sarin on a “small scale” several times, causing 100 to 150 deaths. Obama repeatedly has said the use of chemical weapons by Assad’s regime would be a red line for the U.S.

“The U.S. is sending weapons to Syria and is ratcheting up geopolitical tensions,” McGillian said.

In Iran, voters went to the polls today to choose a successor to President Mahmoud Ahmadinejad who may determine whether the country’s international isolation will continue. Iran holds the world’s fourth-largest oil reserves. Voting closed at 11 p.m. local time after it was extended by five hours, according to the Interior Ministry.

Iranian Election

Opinion polls show Iranian voters want a president who will secure an end to sanctions to halt the country’s nuclear program. The U.S. and Israel say the Persian Gulf nation is secretly pursuing an atomic weapons capability, while Iran says the program is for civilian energy and medical research.

“With the election, the concern is that you may see unrest in Iran,” Lynch said.

The U.S. tightened sanctions against the Islamic republic on Dec. 31, 2011. Iran’s crude production dropped to 2.5 million barrels a day last month, down from 3.58 million in December 2011, estimates compiled by Bloomberg show.

West Texas Intermediate crude may decline next week as U.S. supplies gained and on speculation that the Federal Reserve may taper its monetary stimulus, a Bloomberg survey showed.

Implied volatility for at-the-money WTI options expiring in August was 18.8 percent, compared with 19.7 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 670,064 contracts as of 4:01 p.m. It totaled 564,743 contracts yesterday, 6.2 percent lower than the three-month average. Open interest was a record 1.83 million contracts.

(Corrects reference in 10th paragraph to Syria bordering Iran in story published June 14. )
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