Oil Trades Near Three-Year High as Middle East Risks Flare

04:52' PM - Thursday, 12/04/2018

Oil steadied after jumping to the highest in more than three years on concern that escalating tensions in the Middle East could lead to conflict and disrupted supplies.

Futures in New York remained above $66 a barrel, having jumped 2 percent on Wednesday to the highest since December 2014. Saudi Arabia, the biggest oil exporter, intercepted a ballistic missile fired by pro-Iranian Yemeni rebels over its capital just hours after President Donald Trump warned America is preparing to strike Syria. Meanwhile, investors largely shrugged off a U.S. government report showing a surprise gain in nationwide crude inventories.

“The geopolitical noise is as loud as it gets,” said Norbert Ruecker, head of commodity research at Julius Baer Group Ltd. in Zurich.

A measure of oil-price volatility also jumped Wednesday on speculation rising conflict in the Middle East may hinder crude output and shrink global supplies, sending prices above January’s highs. At the same time, concerns persist that surging U.S. production will damp efforts by the Organization of Petroleum Exporting Countries and its allies to tighten the market and prop up prices.

West Texas Intermediate for May delivery was at $66.75 a barrel on the New York Mercantile Exchange, down 7 cents, at 9:41 a.m. London time. The contract climbed $1.31 to $66.82 on Wednesday, the highest since December 2014. Total volume traded Thursday was about 38 percent above the 100-day average.

Brent for June settlement slipped 19 cents to $71.87 a barrel on the London-based ICE Futures Europe exchange, after adding $1.02 on Wednesday. The global benchmark crude traded at a $5.23 premium to June WTI.

Yuan-denominated futures for September delivery rose 1.5 percent to 424.4 yuan a barrel on the Shanghai International Energy Exchange.

Geopolitical Tensions

Tensions in the Middle East flared as Saudi Arabia said it intercepted a ballistic missile over Riyadh and shot down two drones in another part of the country in the latest attacks by Yemeni rebels. Just hours earlier, Trump had confirmed the U.S. would strike Syrian President Bashar al-Assad, whose forces are backed by Russia and Iran, over a suspected chemical-weapons attack.

“The oil markets are very much linked to geopolitical tensions, especially if they’re in the Middle East, the heart of global oil exports,” Fatih Birol, executive director of the International Energy Agency, said on Bloomberg Television. “If tensions continue, they will continue to have an impact on the oil market and prices. Definitely, this will be a reason to push the prices up.”

With investors more concerned about events in the Middle East, the shock gain in U.S. stockpiles did little to temper prices. Inventories increased 3.3 million barrels last week, according to the Energy Information Administration’s data on Wednesday. That compares with a 1.25 million-barrel decline estimated in a Bloomberg survey before the data. - Bloomberg -

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