FINANCIAL TIMES

 

US would counter Syria oil spike with reserves, say analysts

September 4, 2013 7:55 pm - By Ed Crooks and Gregory Meyer in New York

 

Expectations are growing in the oil market that a release of crude from the US Strategic Petroleum
Reserve would be likely if prices rose significantly above $120 after a US-led attack on Syria.


A US strike against the regime of Bashar al-Assad is not expected to have any direct effect on oil supplies,
but a release from oil reserves would be used to counter any disruption that hits oil-producing countries
or trade routes.


A move is not seen as imminent with the Brent crude benchmark trading at about $115 a barrel on
Wednesday.


The International Energy Agency, the rich countries’ watchdog, which would co-ordinate any joint
international release of reserves, said last week: “While the IEA, as always, stands ready to respond in the
event of a major supply disruption, the current situation does not call for an IEA response.”


But analysts say a US release, possibly co-ordinated with other countries, could curb any increase in
prices.


Jason Bordoff, a former White House energy official who now runs the Center on Global Energy Policy,
said: “There is not a hard and fast trigger. But if we see prices up around $125, that is an indicator that
there is tightness in the market, and possibly a problem caused by temporary disruption that could be
eased by a release from strategic reserves.”


Syria is neither a significant oil producer – its exports were modest even before the beginning of the civil
war – nor strategically positioned to control oil trade routes.


Oil prices rose to a six-month high last week, however, because of fears that US strikes could have
unexpected consequences, such as retaliation affecting the Suez Canal, or protests in oil-producing
countries of the Middle East.

 

Michael Wittner, oil analyst at Société Générale, said Iran could seek to encourage attacks supporting
Syria, and warned crude could rise to $150 a barrel if the conflict disrupted crude flows elsewhere.


Jan Stuart, oil analyst at Credit Suisse, said: “The tail risk is the conflict doesn’t stop with the United
States and its allies lobbing a bunch of missiles into Syria. It is what happens after whatever happens next
that the markets need to worry about.”


The concerns are heightened because the world oil market is generally tight. Problems including militant
action and strikes in Libya, weak production in Nigeria, disappointing output from the North Sea and
disruption in Sudan have combined to take about 3m barrels a day off the market.


David Goldwyn, a former senior state department and energy department official who now runs an
advisory firm, said the administration should become more vocal about the possibility of an oil reserves
release to help reassure the market.


“It is almost more important what they say and when they say it, than what they actually do in terms of
releasing oil,” he said.


A release from the SPR would be the first since the co-ordinated international action announced in June
2011, when leading developed countries used their reserves to ease tightness in the market caused by the
loss of Libya’s supplies during the country’s civil war.


Copyright The Financial Times Limited 2013. You may share using our article tools.


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