Oil rose more than $2 a barrel on Wednesday, with Brent pushing above $117 and the U.S. benchmark soaring to its highest in over two years, amid worries a possible military strike by Western powers against Syria could hit Middle Eastern crude supply.
The United States 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.
“Assuming they take action, it’s likely for the risk premium to be built in for quite a while,” Ric Spooner, chief market analyst at CMC Markets in Sydney said, referring to oil prices.
Brent had jumped to a 6-month high of $117.23 a barrel by 0345 GMT, while U.S. crude hit an intraday high of $111.75 — its loftiest since May 2011.
Oil prices have gained $5-$6 so far this week on worries tensions in Syria could spill over and destabilize the Middle East, which pumps a third of the world’s oil.
The risk premium could vary from $10 to $25, Spooner said, adding that if the situation worsens Brent could rise to $119-$126 while U.S. crude could move toward $114-$115.
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.
“While the events in Syria have little impact on oil prices in isolation, the potential impacts flowing through to the rest of the region are high while sectarian violence continues in Iraq and supplies from Nigeria, Libya and Sudan continue to disappoint,” ANZ analysts said in a note.
Oil could also get another boost if the U.S. Federal Reserve decides to start paring back its bond purchases later than the anticipated September timeline.
“Another potential outcome from Syria is that if it does deteriorate, it could make the Fed less likely to act in September,” CMC’s Spooner said. “It’s another general supportive factor for commodities, including oil.”
Investors are now waiting for weekly oil inventories data from the United States later in the day for clues on demand in the world’s top consumer.
U.S. crude stocks rose last week while gasoline inventories declined and distillate stocks increased, data from industry group the American Petroleum Institute showed.
Information from Reuters was used in this report.