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Oil

The Attack on Syria Could Upend Long-Quiet Oil Markets

By
David Z. Morris
David Z. Morris
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By
David Z. Morris
David Z. Morris
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April 14, 2018, 5:04 PM ET

The coalition missile strike on Syria late Friday seemed to confirm market anxieties about resurgent instability in the Middle East, which have pushed oil prices and futures up over the past week. Combined with successful tightening of the global supply by OPEC and its allies, analysts broadly foresee rising oil prices after three years of low and fairly steady prices – with the potential for real surges if things go badly in Syria.

Crude oil prices climbed steeply even before the U.S. strikes, climbing 2% to $66.82 per barrel after President Trump announced his intention to take action in Syria. By Friday afternoon, oil prices had risen at the highest weekly rate in eight months.

A report issued by the International Energy Association on Friday expressed longer-term bullishness, based not just on the Syria situation, but also dwindling reserves following a collective 2016 agreement, known as the Vienna agreement, to cut global oil output. Credit Suisse updated its price forecasts on Friday as well, to an average of $70 for Brent crude.

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A JPMorgan note, though, opined that Brent could spike to $80 a barrel if the Syrian civil war expands.

That’s because escalation could have implications far beyond Syria itself, where a long-running civil war has already devastated oil production. Syria, much like Yemen, has become a proxy battleground for a dizzying web of regional players, including bitter rivals Saudi Arabia and Iran, each supported by a loose coalition of both state and non-state allies near and far.

A relatively muted Russian response so far suggests the Friday night strike may not escalate those tensions, though it’s too soon to say much with certainty. But even if the worst does come to pass, crude prices seem unlikely to return to levels seen even as recently as 2014, when Brent Crude hovered around $110 a barrel. Even with a steadily growing global economy, alternative energy sources including natural gas have continued to suppress oil demand.

About the Author
By David Z. Morris
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