WTI Crude and Brent Oil Fall As Geopolitical Tensions Ease

Crude oil fell by $1.61 this morning to touch 106.04 while Brent oil tumbled to 112.84. The spread remains in the 6-7$ range which is close to average after narrowing last week as crude oil climbed to touch as high as 112. The market surged on Wednesday in anticipation of Western military strikes on Syria, with New York crude striking $112.24 per barrel, which was the highest level since early May 2011. Brent oil soared to $117.34 a barrel, last seen in late February. Prices then fell back on Thursday and Friday as prospects receded for an imminent strike against Syria over its alleged use of chemical weapons. Although Syria is not a major oil producer, traders are nervous about a broader conflict in the crude-rich Middle East region, including neighboring Iraq, which is becoming a major exporter. By Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in October advanced to $114.74 a barrel compared with $111.06 a week earlier. On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for September increased to $108.02 per barrel, from $106.20.

Over the weekend President Obama decided to seek Congressional approval before he acts, although he did reiterate that he did not need to seek the approval and has the power to act independently. What needs to be kept in mind is that the Syrian oil output has shriveled to just 50,000 barrels a day at present from 350,000 barrels in March. At its peak, it accounted for less than 0.5 per cent of global oil supply. What is more, sanctions were imposed against the country in 2011 that barred it from selling its oil internationally. The strong US dollar which has been pushed over the 82 price level on strong economic data and safe haven trades will also weigh on the dollar denominated commodity.

Yemen’s main oil pipeline was blown up on Sunday, local officials and oil industry sources said, continuing a series of attacks that have slashed the impoverished country’s foreign currency earnings. Sunday’s attack in the central Maarib province, which came after a tribe threatened to blow up the pipeline after a siege on a tribal leader’s house by security forces, set the pipeline on fire, the sources said. Yemen, which relies on oil and gas exports for foreign currency and to finance up to 70 percent of public spending, has seen frequent bombings of the key pipeline since early 2011. Libya continues to face protests and is unable to open the ports to export its production, while Egyptian protests continue to disrupt the economy.

Traders are now turning their focus on the Bank of Japan meeting this week in the hopes of a huge stimulus package which will support crude oil prices. Speculation that the Federal Reserve may cut back on, or taper, its monthly bond purchases as soon as September has made investors nervous. Volume was been low all week, which is typical for late August. The U.S. markets will be closed today for Labor Day summer holiday. The COMEX and the NYMEX are closed today.