Oil recovers as threat of Syrian war escalation wanes
New York — Oil recovered some ground on Monday, but prices were still down on the day as investor concern waned about escalating tensions in the Middle East following air strikes on Syria over the weekend.
The US, France and Britain launched 105 missiles on Saturday, targeting what they said were three chemical weapons facilities in Syria in retaliation for a suspected poison gas attack on April 7.
Oil prices had risen nearly 10% in the run-up to the strikes, as investors bulked up on assets, such as gold or US Treasuries, that can shield against geopolitical risks.
"Some of the ease in Syria is the headline that is bringing it down," said Phil Streible, senior market strategist at RJO Futures in Chicago. Because the attacks were more surgical than anticipated in more extreme scenarios, the market has shrugged off bullish factors, he said.
"It has got everything to possibly boost it: weak dollar, Syria, potential sanctions, White House uncertainty, China trade," he said.
Brent crude oil futures were down 74c at $71.84 a barrel by 1700 GMT, having recovered from a session low of $71.11, while US crude futures were down 75c at $66.64 a barrel.
"As far as developments in Syria are concerned, the market has had a sigh of relief in the sense that there is no escalation, either diplomatically, or on the ground, following the intervention by the US, France and the UK," said BNP Paribas global head of commodity market strategy Harry Tchilinguirian.
"As a macro asset-allocator, if you want to hedge your portfolio against geopolitical risk, your prime candidate is oil, especially if that risk is in the Middle East."
Although Syria itself is not a significant oil producer, the wider Middle East is the world’s most important crude exporter and tension in the region tends to put oil markets on edge.
"Investors continued to worry about the impact of a wider conflict in the Middle East," ANZ bank said.
Fund managers hold more Brent futures and options than at any time since records began in 2011, according to data from the Intercontinental Exchange.
Investors have added to their bullish positions in Brent, which now equal nearly 640-million barrels of oil, in nine out of the last 10 months.
The next event on investors’ radar is a deadline looming in May by which US President Donald Trump has threatened to withdraw the US from a deal between Tehran and six world powers on Iran’s nuclear restrictions, signed in 2015 before he took office, unless Congress and European allies help "fix" it with a follow-up pact.
Even the imposition of unilateral sanctions by the US government could hamper exports of oil from Iran, one of the world’s largest producers.
"Oil is still holding relatively well and the mid-May Iranian deadline is going to be a bit of a subject for the next four weeks," Petromatrix strategist Olivier Jakob said.