Oil prices reach 3 year high amid Middle East tensions

Oil prices jumped to their highest point in three years yesterday, amid fears of possible Western military involvement in the Syrian conflict, before edging slightly down earlier today.

The price of oil futures rose more than 2 per cent in the course of Wednesday, topping $67 a barrel for the first time since December 2014. This morning, prices had fallen by 22 cents to $66.62, although uncertainty remains.

Prices peaked following reports that US President Donald Trump is considering forming a coalition with Britain and France to launch air strikes against the Syrian regime, in response to the chemical attack in the Damascus suburb of Douma last weekend. Whilst Syria is not a major oil exporter, with reduced production since the start of the war, its core allies Iran and Russia are both major global producers. Russian officials have reiterated their support for the Assad regime, stating this week that they would shoot down any missiles posing a threat to Damascus.

President Trump responded to the comments on Twitter yesterday, telling Russia to “get ready … they [the missiles] will be coming, nice and new and ‘smart’!”

The announcement sent shockwaves across international markets, with the Russian rouble falling to a two-year low against the dollar, and British, Germany and French stock markets remaining largely flat by the close yesterday. The markets inched into positive territory earlier today, after Trump tweeted a clarification that an attack on Syria may not take place “so soon at all”.

Never said when an attack on Syria would take place. Could be very soon or not so soon at all! In any event, the United States, under my Administration, has done a great job of ridding the region of ISIS. Where is our “Thank you America?”

— Donald J. Trump (@realDonaldTrump) April 12, 2018

Prices were also impacted by reports that Saudi Arabia intercepted missiles over Riyadh fired by Yemeni Houthi rebels. The Houthis claimed to have targeted the Defence Ministry in Riyadh and a Saudi Aramco distribution facility in Najran. The attacks mark the fourth time in five months that missiles have flown over Riyadh, as the Houthis step up efforts to demonstrate that they can reach the Saudi capital.

Read: Russia responds to Trump’s threat of airstrikes

Israel is also on high alert for possible retaliation air strikes from Iran, after a suspected Israeli attack on a Syrian airbase left at least seven Iranian military advisers dead. Iran, Syria and Russia denounced the strike, with the Russian Foreign Ministry summoning Israel’s ambassador in Moscow.

Whilst supplies of oil remain ample, prices have remained high in recent months with further rises expected over the summer unless current tensions de-escalate.

“Yes, it’s the tweets, and all the recent geopolitical worries,” Genscape crude oil analyst Mike Walls told CNN. “There’s so much uncertainty over there for oil traders. If that cools off, it could come back down rather sharply.”

US crude oil inventories rose by 3.3 million barrels to 428.64 million barrels, while crude production last week hit a record 10.53 million barrels per day. The US now produces more crude than top exporter Saudi Arabia. Only Russia, at nearly 11 million barrels a day, pumps more.

Whilst geopolitical issues remain the key determinant of prices, analysts hope that supply will eventually push prices down, with a high likelihood of a downward correction in the second half of the year.

Read: Netanyahu asks ministers not to discuss Syrian airbase strike