Oil prices surged on Wednesday, with Brent pushing above $117 and the US benchmark soaring to its highest in more than two years, amid worries a possible military strike against Syria may raise tensions in the West Asia.
The US and its allies have told the Syrian opposition to expect military action soon against President Bashar al-Assad’s forces, which were blamed for last week’s chemical weapons attacks.
Brent has gained 4% and the US benchmark 3% so far this week on worries tensions in Syria could engulf major crude producers in the West Asia, which pumps a third of the world’s oil.
“Assuming they (the Western powers) take action, it’s likely for the risk premium to be built in for quite a while,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.
Brent earlier jumped to a 6-month high of $117.34 a barrel and was at $116.07, up $1.71, at 0759 GMT. US crude rose $1.16 to $110.17, after hitting an intraday peak of $112.24 — its highest since May 2011. The risk premium could vary from $10 to $25, Spooner said, adding that if the situation worsens Brent could rise to $119-$126 and US crude could move towards $114-$115.
“Given that the end result of any military action is likely to be drawn out and messy, the doors for Brent prices towards $120 have now been opened,” analysts at Energy Aspects said in a note.
A prolonged outage at several Libyan oilfields has also underpinned prices.
Libya’s largest western oilfields closed when an armed group shut down the pipeline linking them to ports, its deputy oil minister said on Tuesday. Total Libyan oil output would be just under 200,000 barrels per day from pre-war levels of around 1.6 million bpd, according to a Reuters estimate, the worst disruption since the civil war in 2011.
Oil could also get a boost if the US Federal Reserve decides to start paring back its bond purchases later than the anticipated September timeline. Investors are now waiting for weekly oil inventory data from the US later in the day for clues on demand in the world’s top consumer.