Oil hovers at four-week high after US Syria strike

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Oil prices approached $56 a barrel on Friday, the highest in four-weeks, after the US launched a missile strike on Syria.

Although the conflict has little direct impact on oil supplies, and prices have pared gains since the initial action, analysts said the market is sensitive to the broader implications of the US intervention.

Analysts said the targeted nature of the US strike meant there was not an immediate risk of escalation and the US administration has stressed the limited nature of the intervention rather than a sustained military campaign.

But Olivier Jakob at consultancy Petromatrix said the speed at which the US took action will be noted by oil market watchers. “there is no room to buy the rumor/sell the fact; we have to deal with the fact straightaway” he said.

He said traders will be monitoring broader global geopolitical consequences, that are both positive and negative for prices:

Positives

  • For the Obama administration, Syria was big point of contention and he sought the participation of other global powers for any attack. The overnight strike confirms the US’s willingness to take unilateral action
  • The strike could mobilise and give support to hardliners in Iran ahead of the country’s presidential elections in May
  • The move puts Russia on the back foot, which might prompt Moscow to respond with a show of its own power in Syria

Negatives

  • The attack was issued while China’s president was visiting the US, which may result on greater caution towards the US administration and uncertainty about the bilateral relationship and broader global economy.
  • Could the strike have an impact on the Saudi/Russia oil supply management pact? Under Obama, Saudi influence diminished but the arrival of the Trump administration might put them back in favour. If the kingdom’s ambitions in Syria increase, does this make continued Russian participation in the oil supply cuts more difficult?

Richard Mallinson at consultancy Energy Aspects said there could be other knock on effects. As the oil market rebalances “geopolitical events that put oil supply at risk – e.g. Libya, Iraq, Colombia – will start to play a bigger role in price formation again.”

Brent crude, the global benchmark, rose 1.28 per cent to $55.29 a barrel. West Texas Intermediate, the US marker, increased 1.4 per cent to $1,37 per cent a barrel.

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