Energy Update: War Drums Send Oil Surging…
West Texas Intermediate (WTI) is going ballistic this morning. The commodity jumped to $112 a barrel in overnight trading thanks to the quickly developing crisis in Syria.
What’s going on?
In a nutshell, the US is threatening to strike Syria in retaliation for the country’s cowardly leader, Bashar al-Assad, using chemical weapons on his own citizens. As you may know, the United Nations outlawed chemical weapons decades ago due to their agonizing and deadly effects.
Without question, it’s a horrible situation.
But when it comes to commodities, all you really need to know is this…
There’s a growing possibility of a widening Middle East regional crisis involving Syria, Israel, and Iran. As you may know, Iran is a loyal ally of the Syrian government. So threats against Syria by Western governments are being met with counter threats by Iran.
Iran went on the record yesterday proclaiming if the US and its allies attack Syria, they will respond with an attack on Israel.
The possibility of Iran becoming involved in this mess could turn the heretofore contained Syrian situation into an extremely volatile regional crisis.
And that’s precisely why the oil market is reacting the way it is. With WTI trading at its highest level in over two years, investors are growing increasingly worried of global supply disruptions.
Of course, WTI isn’t the only oil benchmark reacting to the news. Brent crude ran to $116 a barrel in early trading this morning.
As you may know, Brent is commonly known as the European oil price. If Middle East supply disruptions actually come to fruition, Europe will undoubtedly be hit hardest. After all, Libya, Saudi Arabia, and Iran account for nearly 15% of Europe’s total yearly oil imports.
Listen, I know it sounds like this situation has the potential to send oil prices to the moon…
But the fact is, we’ve seen it all before.
The Middle East is a notoriously volatile region. In early 2011, WTI exploded to $114 a barrel as political unrest spread through North African and Middle Eastern countries.
The US and its allies even went as far as to pound Libya with cruise missiles and air attacks, killing Dictator Muammar Gaddafi. Without question, it was an extremely tense few months for global markets.
But once the whole affair simmered down in late April 2011, the price of oil plummeted by $14 a barrel in a matter of days.
And there’s a very high probability of it happening again this time around…
We’ll likely see crude jump to test the $114 resistance level set in 2011 before the situation with Syria is settled.
But remember, the summer driving season is coming to an end and US oil inventories are robust. Without this uproar in the Middle East, WTI would likely be trading around $90 a barrel.
Bottom line…
Be very careful if you’re long the oil market right now. We could easily see the commodity drop $20 a barrel overnight!
Until Next Time,
Justin Bennett
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Category: Brent Crude, Crude Oil, Energy
