Oil may be a liquid, but it’s also a rock.
President Donald Trump’s overnight airstrike on targets in Syria prompted speculation that the market could be in for a shakeup, and at first, that appeared to be the case. After the attack, global benchmark Brent crude jumped 2% to $56.08, its highest level since March 7, while U.S. West Texas Intermediate crude, which is the domestic marker for oil, also rose 2%, peaking at $52.94.
But by midday Friday, the market had already started to give back most of those gains, with both benchmarks gaining less than 1% for the day.
The regression to the mean is indicative of an oil market that is both largely unaffected by what is happening in Syria and also insulated from any effects that may spill over outside of the country.
Although Syria is in an oil rich area of the world, it’s not a major producer, pumping out just 35,000 barrels of petroleum and other liquids a day last year, ranking it 66th in the world, according to the U.S. Energy Information Administration. By comparison, the United States, which is the world’s leader, produced 14.8 million barrels a day in 2016, followed by Saudi Arabia and Russia, with 12.4 million and 11.2 million barrels a day, respectively.
With such a small scale of production, any loss in Syrian oil to the world supply will be scarcely noticed. The real point of contention is how other players on the international scene will react to the U.S.’s military intervention. Russian President Vladimir Putin has already denounced the U.S.’s actions, as has Iran, while Saudi Arabia supports the airstrikes.
Although increased tensions between the U.S. and Russia make for headlines they don’t really affect oil production in any meaningful way. There is too much money involved for one nation to cut production out of spite or to prove some kind of point. This is especially true of Russia, which is in need of a steady cash stream as it tries to steady its wobbly economy.
Another reason oil isn’t in for a spike is simply because so much of it has been stockpiled. There are 535.5 million barrels of oil stored in the United States alone, which is a record high. If U.S. intervention in Syria drags on, and the conflict spills over and somehow affects production in neighboring countries, there is enough oil in reserve to stem a setback, barring an absolutely catastrophic development.
As production and stockpiles have expanded, the price of oil has fallen precipitously over the last three years, with prices currently sitting at around half their mid 2014 values. Since then, the oil market has had a rough ride as it tries to recover. The market bottomed out at the beginning of 2016 when a barrel of crude sold for around $30. Prices have since rebounded somewhat, but have not broken the $60 threshold since early 2015.