Oil prices rise on heightened Middle East tensions

Oil futures traded higher early Wednesday, buoyed by concerns about rising tensions in the Middle East that could result in supply disruptions.

On the New York Mercantile Exchange, West Texas Intermediate futures for May delivery

CLK8, +0.67%

the U.S. benchmark, were trading up 1.1% at $66.22 a barrel. June Brent crude, the global oil benchmark, meanwhile, rose 0.8 at $71.63 a barrel on London’s ICE Futures exchange, extending a climb to its highest level since early 2014.

The brisk rally in crude prices comes as the administration has been working to rally international support for a possible military strike against Syrian President Bashar al-Assad for an alleged chemical-weapons attack. Renewed conflict in the Middle East, which could also draw a response from Syrian ally Russia, could hinder oil output and weigh down global supply, analysts say.

President Donald Trump early Wednesday tweeted that relationship was Russia “is worse now than it has ever been, and that includes the Cold War” and appeared to suggest that a strike against Damascus might be imminent, in a separate tweet.

Those factors, which are supportive for energy futures, has helped deliver a jolt to the energy complex broadly. Energy stocks have jumped, with the largest exchange-traded fund to track the energy sector, the Energy Select Sector SPDR ETF

XLE, +3.31%

recording its best session since November 2016, up 3.3% on Tuesday, led by gains by Exxon Mobil Corp.

XOM, +2.94%

 and Chevron Corp.

CVX, +2.47%

“Fears that the supply of crude could be interrupted as a result of [an international strike] is the main reason behind the oil price rally. A barrel of Brent now costs more than $71,” wrote Fawad Razaqzada, market analyst at Forex.com wrote in a Wednesday client note. He said that reduced output from the Organization of the Petroleum Exporting Countries, amid a broad pack to trim output, also has supported futures.

Still, the analyst cautioned that the current rise for oil may be limited due to expected U.S. production.

“However with the U.S. oil production set to rise further in the coming months, the global oil market will likely remain amply supplied in the long-term. We therefore think that oil prices will struggle to rise significantly further, although in the short-term price spikes are possible given the heightened possibility of military action in Syria,” Razaqzada wrote.

Investors are also monitoring the potential for the U.S. to scrap a 2015 nuclear agreement with Iran and reinstate sanctions when it reviews its position next month.

Concerns about a possible trade war between the U.S. and China have also supported prices, with both countries threatening to impose tariffs on billions of dollars of products in recent weeks, although crude hasn’t been included so far.

Looking ahead, the U.S. Energy Information Administration is due to publish its latest weekly update on stocks and production later in the session, with data from industry group the American Petroleum Institute released Tuesday pointing to a weekly crude inventory build of 1.8 million barrels.

Monthly oil reports are also due out from the Organization of the Petroleum Exporting Countries on Thursday and the International Energy Agency on Friday.

Robert Yawger, director at Mizuho Securities U.S.A. said that the coming data could result in a key test of WTI futures’s resistance levels near its four-year high at around $66.89 a barrel, hit early December of 2014 and its Jan. 26 high of $66.14.

“I would tend to think that the market will be looking for reasons to buy the EIA report at 10:30 a.m. and test the key resistance levels above,” Yawger wrote in a Wednesday note.

Among refined products, May gasoline

RBK8, -0.04%

 added less than 0.1% to $2.043 a gallon and May heating oil

HOK8, +0.62%

 advanced a penny, or 0.7%, to $2.078 a gallon.

May natural gas futures

NGK18, +0.00%

 fell by a penny, or 0.3%, at $2.647 per million British thermal units.

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