United States Congress debates surrounding a military strike against Syria pushed fears of crude oil supply disruptions in the Middle East under the rug on Wednesday. But according to market experts, whether or not the US strikes out against Syria, the oil market is in for a bullish time.
US crude oil prices have fallen to their lowest level in two weeks, with light sweet crude for October delivery down to $107.23 a barrel — a drop of $1.31 — on the New York Mercantile Exchange. That is the largest single-day drop for oil in more than two weeks, according to The Wall Street Journal.
The reason behind the decline in oil prices came amid diminished expectations that the market could see a supply disruption from the Middle East should the US lead a military strike against Syria. While the threat of war normally pushes oil up, anticipation of a limited military engagement this time pushed the price of crude down, according to ABC News.
On Wednesday, US President Barack Obama was looking for approval from US lawmakers regarding his plan for a military strike against Syria for an alleged chemical attack on its citizens, Reuters wrote. While Syria is not a big oil producer, investors are worried that a strike against it could provoke unrest in one of the largest oil producing regions in the world. Syria borders Iraq, the biggest producer among the Organization of Petroleum Exporting Countries (OPEC) after Saudi Arabia.
Though oil was down on Wednesday, tensions between the US and Syria have certainly taken oil prices to new heights in recent weeks. But the expectation is that regardless of whether or not the US goes to war against Syria, sentiment in the oil market will remain bullish.
Giacomo Luciani, adjunct profession of international affairs at the Graduate Institute in Geneva chalked the recent price activity for oil up to a “typical paper market” effect. ”Such fundamentally irrational price movements are common and inevitable and the industry has learned to live with them, unless for some reason they persist over time and prices are driven in a direction not supported by fundamentals for an extended period of time (several months),” Luciani told The Christian Science Monitor.
Speaking on the fundamentals at play in the current oil market was Sean Hyman, editor of Moneynews at the monthly Ultimate Wealth Report. He told CNBC that “[e]ven if there is a war in Syria or no war in Syria I think oil will remain strong.” Hyman went on to speculate that “WTI could go from $108 to $117 [a barrel] and Brent could go from $115 to $125 [a barrel] very easily.”
Hyman pointed to other factors beyond Syria that are playing with the fundamentals of the oil market. With the current striking of oil workers in Libya and uncertainty with the Egyptian government, combined with the uncertainty surrounding Syria, and there is a big case for oil to climb further.
As far as Credit Suisse is concerned, Libya presents a more immediate risk to the oil markets than the threat of military action against Syria.
Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.