U.S. oil prices soared to an 18-month high as traders worried that a potential military strike against Syria could disrupt the region's oil supplies. October crude futures surged 2.9%, to $109.01 a barrel on the New York Mercantile Exchange, their highest close since February 2012. Brent futures ended up 3.2% at $114.28 a barrel, a six-month high. Prices climbed Tuesday as leaders in Europe and the Middle East condemned the alleged use of chemical weapons against Syrian rebels by the government of Bashar al-Assad. The statements–following harsh words by U.S. Secretary of State John Kerry on Monday–were seen laying the groundwork for foreign intervention in Syria's civil war. A U.S.-led intervention would mark an escalation to the conflict in Syria, and raises the prospect that violence could spill over into other countries in the region, where roughly one-third of the world's crude is produced. Oil prices have risen about 15% already this summer as turmoil has swept through several countries in the Middle East and North Africa that form key links in the global energy supply chain, including protests that restricted Libyan oil exports and a surge in violence in Iraq.
Syria is not a major oil producer, but it's situated near major sea routes and pipelines that transport millions of barrels of crude and refined products daily. Between the Suez Canal and the Suez-Mediterranean pipeline, 4.5 million barrels a day flow through Egypt alone, or about 5% of global supply, according to the Energy Information Administration. "We added about 3% [to oil prices] today on nothing more than fear," said Matt Smith, an analyst at Schneider Electric SA, an energy consulting firm. However, some analysts say prices could quickly fall back if a U.S.-led coalition steps into Syria's conflict and oil continues to flow out of the Middle East uninterrupted. Additionally, some supplies cut off earlier in the year are beginning to return; oil prices fell on Monday after the Libyan oil terminal at Marsa al Brega reopened. Protesters had disrupted exports from the port. And past events in the Middle East that led to higher oil prices, including the 2003 invasion of Iraq and the overthrow of Libya's government in 2011 took place in countries that were large producers, said Kyle Cooper, director of research at IAF Advisors. The "likelihood of any disruption in supply is rather minor," Mr. Cooper said. Elsewhere, traders will be watching Wednesday for the EIA's weekly oil inventory report. Analysts polled by The Wall Street Journal expect inventories to decline by 300,000 barrels in the week ended Aug. 23. Crude stockpiles have fallen in seven of the past eight weeks, recently hitting a one-year low. On Tuesday, the American Petroleum Institute reported oil inventories rose 2.5 million barrels last week. Front-month September reformulated gasoline blendstock, or RBOB, also rallied, rising 6.58 cents, or, 2.2%, to $3.0186 a gallon. September heating oil rose 7.30 cents, or 2.4% to $3.1525 a gallon.
