Oil prices jumped on Wednesday after Saudi Arabia reported it intercepted missiles over its capital city of Riyadh, increasing Middle East tensions. Reuters photo by Faisal Al Nasser.
Oil prices up almost 2 per cent Wednesday
On Wednesday, oil prices hit their highest mark in over three years after international tensions over Syria increased after a Saudi Arabia media outlet reported that the kingdom’s military had intercepted missiles over the capital city of Riyadh.
After hitting $67.23/barrel earlier in the session, by 2 p.m., EDT, US WTI sat at $66.85, and was up by $1.34. Benchmark Brent crude rose by $1.10/barrel to $72.14. On Wednesday, Brent hit its highest mark since late 2014. The Canadian Crude Index was $1.17/barrel higher, rising to $49.86.
Rising geopolitical tensions were the markets’ main driver, overshadowing global crude inventories.
“A bearish inventory report was quickly negated on word of intercepted rockets over Riyadh, which just adds to the recent spike in geopolitical tensions,” Anthony Headrick, energy market analyst and commodities futures broker at CHS Hedging LLC told Reuters.
Wednesday’s oil price rally began after US President Donald Trump threatened to respond to the chemical attack on rebels fighting the regime of Syrian President Bashar al-Assad last week by firing missiles at Syria.
Trump also criticized Russia for its continuing support of Assad. In a tweet on Wednesday, Trump wrote “Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and ‘smart!’”
Some major airlines are re-routing flights on Wednesday after Eurocontrol, the EU’s air traffic control agency, warned airlines traveling in the eastern Mediterranean to exercise caution due to the possible threat of air strikes into Syria in the next 72 hours.
“The focus right now is definitely on a possible military strike against Syria,” Commerzbank’s head of commodity research, Eugen Weinberg told Reuters.
Not long after Trump’s comments on Syria, Saudi Arabia’s air defence forces intercepted a missile over Riyadh.
Al Arabiya, a Saudi-owned broadcaster, showed a photo of the missile which was described as “a hostile Houthi aircraft with Iranian characteristics and specifications that were trying to target the airport.”
The United States is also threatening to renew sanctions against Iran, which could impact the world’s supply of crude.
“We think the fundamentals do not justify the current price, but unfortunately the market is focusing more on the politics and ignoring some of the warning signs, especially the hike in U.S. oil production,” said Weinberg.
Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London disagrees, arguing Middle East tensions will not likely take away the market’s focus on fundamentals.
“Market participants will closely watch oil-production profile in the U.S., which is also expected to have a material impact on the outcome of the upcoming OPEC meeting in June,” said Kumar.
Outside the politics and geopolitical tensions, Saudi Arabia’s Energy Minister has vowed to not allow another oil glut to happen, hinting the kingdom will continue to rein in crude production by OPEC and the OPEC supply pact participants.
According to the US Energy Information Administration, US crude stocks rose by 3.3 million barrels in the week ending April 6. Analysts polled by Reuters prior to the data release had expected crude inventories to fall by 189,000 barrels.