MARKET WATCH: Syria bombings hike oil prices

News of a second Israeli air strike on Syria during the weekend pulled the oil market out of a morning slump May 6 with front-month crude up nearly 1% by the end of the New York market session.

North Sea Brent futures gained more, climbing above $105/bbl, “given that it is used to price Middle Eastern oil,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

However, he said, “While geo-political risk premium cannot be ignored, unless there is a substantial escalation of Middle East tensions whereby significant oil producers are drawn into a conflict this premium should fade in due course as the uncertainty subsides. Coupled with a tempering of demand prospects, especially from China, we doubt that Brent can stay sustainably above the $105/bbl mark unless the Middle East situation worsens.”

Ground said, “Growing confidence in oil has much to do with a growing optimism about the growth prospects for the US. We would concur that the outlook for US oil demand is promising but that a weaker outlook for the world’s other premier consumer of oil (China) will constrain upside. These disparate growth outlooks will most likely maintain the narrowness of the Brent-West Texas Intermediate spread.”

In Houston, analysts with Raymond James & Associates Inc. reported, “Natural gas pulled back by 1% on milder weather forecasts, and although the commodity is now trading sub-$4/Mcf, it is still up nearly 20% year-to-date.” Despite the lack of “major economic news” in the equity market, the Standard & Poor’s 500 Index “kept pushing on and closed at yet another record high after a marginal gain on the day,” they said. Energy stocks followed the broader market, with the SIG Oil Exploration & Production Index and the Oil Service Index posting 1% gains.

Energy prices

The June contract for benchmark US sweet, light crudes rose 55¢ to $96.16/bbl May 6 on the New York Mercantile Exchange. The July contract gained 57¢ to $96.39/bbl. On the US spot market, WTI at Cushing, Okla., was up 55¢ to $96.16/bbl.

Heating oil for June delivery increased 3.58¢ to $2.92/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 4.03¢ to $2.87/gal.

The June natural gas contract lost 3¢ to $4.01/MMbtu, more than wiping out its gain in the previous NYMEX session. On the US spot market, gas at Henry Hub, La., dropped 3.4¢ to $3.93/MMbtu.

In London, the June IPE contract for Brent gained $1.27 to $105.46/bbl. Gas oil for May increased 75¢ to $858.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up $1.14 to $102.61/bbl.

Contact Sam Fletcher at samf@ogjonline.com