Brent holds above $115 as Syria concerns stoke supply fears

Brent crude held above $115 a barrel, near a week's high, as US lawmakers voiced support for military action on Syria
By Reuters
Wed 04 Sep 2013 11:41 AM

Brent crude held above $115 a barrel on Wednesday, near a week's high, as U.S. lawmakers voiced support for military action on Syria, renewing jitters over potential supply disruption in the Middle East.

President Barack Obama won the backing of key figures in the U.S. Congress, including Republicans, in his call for limited strikes on Syria to punish President Bashar al-Assad for his suspected use of chemical weapons against civilians.

Brent crude for October delivery was at $115.73, up 5 cents by 0213 GMT, following a $1.35 gain on Tuesday.

October U.S. crude futures fell 29 cents to $108.25 a barrel after settling up 89 cents in the previous session.

"The U.S. is likely to take some action in Syria," Tetsu Emori, a commodity sales manager at Astmax Investments in Tokyo. "Oil prices should ratchet up."

Analysts from Bank of America Merrill Lynch and Societe Generale expect Brent to rise to $120-$130 a barrel in a limited strike situation, while a protracted war could boost oil by as much as $50.

Oil prices at more than $120 could threaten the still nascent global economic recovery, Emori said.

Syria is not a key oil producer but investors are worried that a strike by Western forces against Syria could spread unrest in the Middle East and disrupt its oil supply.

Markets are already coping with a supply loss from OPEC producer Libya as strikes at ports and pipelines have shrunk exports to around 100,000 barrels per day (bpd) - less than a tenth of capacity. Overall global outages from the Middle East and Africa rose above 3 million bpd - some 3.5 percent of global demand.

"It's not a small number. Even the increase in U.S. oil production is not enough to cover," Emori said.

Sudan's decision to lift a threat to block oil exports from South Sudan provided some relief, although Juba's output at 200,000 bpd remained lower than before the conflict shut its entire production.

Oil supply has become as tight as when the International Energy Agency (IEA) ordered a rare release of strategic oil reserves during the civil war in 2011, raising talks of possible action from the OECD energy watchdog.

U.S. commercial crude oil and gasoline inventories likely fell last week, a preliminary Reuters poll of six analysts showed.

Investors were also awaiting key jobs data from the United States later this week for clues on when the Federal Reserve will slow its massive bond-buying program.

The Fed's decision has been complicated by the potential military strike on Syria that could upset global financial markets, analysts said.

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