Wednesday, February 21, 2024
 
 

Russia’s Syria Strikes, Slowing Production Boost Oil Prices

Russia’s military foray into in Syria has increased the odds of more political instability in the Middle East.

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Rising geopolitical tensions and signs of slowing output, boosted oil prices last week testing new highs.

International oil benchmark Brent crude has rallied by as much as 12% since October 2 to hit $54 a barrel, the highest since late August. US benchmark West Texas Intermediate has also surged, gaining as much as 12.2% last week and moving above $50 a barrel for the first time since July.

Shrinking US production and Russian military operations fuelled oil prices. The plunge in oil prices in the past year prompted energy producers to cut spending on new drilling, and investors are closely watching how quickly US production will decline in response. However, the global glut of crude kept price gains under control.

Shale executives speaking last week at an oil and money conference warned that the plunge in prices since last year was starting to have an impact on tight oil production.

Royal Dutch Shell CEO Ben van Beurden said he saw the first mixed signs of a recovery in oil prices, which have more than halved since the summer of last year.

Independent energy consultant Manouchehr Takin told New Europe by phone from Dubai on October 9 the oil price hike was triggered by the Shell CEO’s statement that because of the oil price reduction of investment in exploration-production will lead to less oil into less oil in the future and therefore higher prices.

Takin added that more factors led to higher prices, including the tension in Syria. Russia, Iran and Saudi Arabia are all involved and traders are concerned that could affect the supply of oil, the energy consultant said.

Russia launched a series of strikes against Syria, escalating its assault on opponents of Bashar al-Assad’s regime. Oil prices can be particularly responsive to unrest or violence in the Middle East, one of world’s biggest oil-producing regions.

US officials said on October 8 that four Russian cruise missiles had fallen in Iran — a Russian ally in the conflict in Syria. Iran is a member of the Organization of Petroleum Exporting Countries (OPEC) and is expected to boost its oil productions once western sanctions are lifted.

Russia’s military foray into in Syria has increased the odds of more political instability in the Middle East. While Syria is not a major oil producer and oil supplies are not directly threatened by Russia’s strikes in Syria, the targeting of anti-Assad rebels also pits Moscow against oil-rich Gulf states such as Saudi Arabia, which has backed many of the anti-Assad groups.

Last November, OPEC led my kingpin Saudi Arabia decided against reducing production in response to a growing supply glut.

Goldman Sachs said that low prices are required in 2016 to finally bring supply and demand into balance by year-end.

PIRA Energy Group said on October 8 it expects crude prices to rise to $70 per barrel by the end of 2016 and $75 a barrel in 2017.

Also supporting prices was the release of the US Fed minutes, which showed that policymakers are concerned that the global economic slowdown may affect the outlook for the US.

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Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

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