MARKET WATCH: Turkey-Syria tensions drive up oil prices

Crude oil prices increased on the New York and London markets Oct. 11 as rising tensions between Turkey and Syria heightened concerns about possible supply disruptions.

Counterbalancing those concerns, the US Energy Information Administration said US crude stockpiles rose more than expected last week.

“Geopolitical risk is reflected more in the Brent price, whose premium over West Texas Intermediate is close to reaching a 1-year high. Currently, the front-month WTI-Brent spread is at $23/bbl,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

“Apart from the ongoing tensions over Iran’s nuclear program, the threat of a spillover of the Syrian civil war into other countries in that region is now raising concerns,” Ground said in a research note. “The market’s attention at present is captured by the escalating conflict between Syria and Turkey.”

Turkey initiated a military response after mortar bomb killings in the Turkish town of Akcakale near the Syrian border. This triggered concerns about a possible disruption of the Kirkuk-Ceyhan pipeline, which transports oil from Iraq.

“However, we feel that this concern is perhaps overdone,” Ground said. “On the WTI side, fears over demand destruction have limited its upward moves. However, we still feel that there is room for some upside in WTI.”

Looking at distillate inventories, Standard Bank analysts believes significant potential exists for rising crude oil demand going into the US winter, Ground said.

EIA said US crude inventories increased 1.7 million bbl to 366.4 million bbl in the week ended Oct. 5, exceeding Wall Street’s consensus for a growth of 1.5 million bbl. Gasoline stocks declined 500,000 bbl to 195.4 million bbl, opposite analysts’ expectations of a 300,000 bbl increase. Finished gasoline decreased while blending components increased. Distillate fuel inventories dropped 3.2 million bbl to 120.9 million bbl, exceeding the 1 million bbl decline the market anticipated.

EIA also reported the injection of 72 bcf of natural gas into US underground storage last week, short of the 77 bcf Wall Street consensus. That put working gas in storage at 3.725 tcf, up 236 bcf from the comparable period a year ago and 269 bcf above the 5-year average (OGJ Online, Oct. 11, 2012).

Energy prices

The November contract for benchmark US light, sweet crudes gained 82¢ to $92.07/bbl Oct. 11 on the New York Mercantile Exchange. The December contract climbed 86¢ to $92.50/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., followed the front-month futures contract up 82¢ to $92.07/bbl.

Heating oil for November delivery rose 4.4¢ to $3.26/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped by 0.37¢ but was essentially unchanged at a rounded $2.96/gal for the third consecutive closing.

The November natural gas contract continued to rally, up 12.9¢ to $3.60/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 9.7¢ to $3.34/MMbtu.

In London, the November IPE contract for North Sea Brent advanced $1.38 to $115.71/bbl. Gas oil for October was unchanged at $1,025.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes rose 41¢ Oct. 11 to $111.35/bbl.

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