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Friday, December 06, 2013
Trinidad & Tobago Guardian Online
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Oil climbs to highest in more than 2 years
The price of oil climbed to its highest in more than two years yesterday as the US edged closer to taking action against Syria for the alleged use of chemical weapons. US benchmark oil for October delivery rose US$1.09, or 1 per cent, to US$110.10 a barrel on the New York Mercantile Exchange. That’s its highest closing price since May 3, 2011. Earlier, oil climbed as high as US$112.24.
Oil has surged 27 per cent since touching a low for the year of US$86.68 on April 17. Political unrest in the Middle East and the threat of US intervention in Syria’s civil war have been big factors behind the price increase. Neither country is a major oil exporter, but traders are concerned that the violence could spread to more important oil-exporting countries or disrupt major oil transport routes.
“The market is very concerned that if the US did carry out a missile strike or some kind of military action that it could pull in Iraq and other neighbouring states in the Middle East,” said Dan Heckman, a national investment consultant, who specialises in commodities, at US Bank Wealth Management.
The UN’s special envoy to Syria, Lakhdar Brahimi, said Wednesday that there was evidence that some kind of chemical “substance” had been used in an attack that may have killed more than 1,000 people near Damascus. Brahimi also said that any strike against Syria needed to gain approval from the 15-member UN Security Council. Global supply worries are also boosting prices.
Libya has cut exports by at least 1 million barrels a day due to production outages and labour conflicts at shipping ports. That is a more likely driver of the recent surge, according to analysts at JBC Energy in Vienna. When Libya’s oil production stopped completely during the revolution in 2011, oil rose by US$20 a barrel over the span of two weeks.
While reports of ample global supplies were recently the norm, JBC Energy said current developments—such as low spare capacity in Saudi Arabia, stockpiles falling in the US, disappointing supply developments around the world and signs of an improving global economy—pointed to tighter markets. Many analysts believe that the move in oil prices is most pronounced in the buildup to any attack. Once the US has carried out the strike, traders will turn their focus on issues such as global oil supply.
In past Middle East conflicts, oil prices rose in anticipation of action, then fell quickly when the conflict actually started. In the run-up to the Gulf War, oil prices more than doubled from under US$20 in July of 1990 to US$40 a barrel in October of that year. But on the day that the US started bombing—January 17, 1991—oil fell 33 per cent, down to US$21 per barrel.
A similar pattern emerged as the Iraq War drew near in 2003. Prices rose from US$31 a barrel at the beginning of the year to nearly US$40 in March in the days before the invasion began. But by the end of March, they had fallen to US$29 a barrel.
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