Oil rallied for a third day amid escalating geopolitical unrest in the Middle East following a possible chemical attack by the Syrian regime against civilians. Prices were also supported as Fridays disappointing new homes sales dampened speculations that the Federal Reserve will taper its bond purchasing program in September and thus supported commodities. Also supportive for oil, China is expected to become worlds top consumer by 2017 and as much as double its imports price tag to $500 billion by 2020.
On the New York Mercantile Exchange, WTI crude for delivery in October rose by 0.35% to $106.74 per barrel at 7:34 GMT. Futures surged to a 1-week high of $107.31 a barrel, while days low stood at $106.73. Light, sweet crude jumped 1.25% on Friday amid prospects for Fed delaying stimulus tapering and settled the week 0.41% higher.
Meanwhile on the ICE, Brent crude for delivery in October traded at $111.08 per barrel at 7:33 GMT, up 0.05% on the day. The European benchmark rallied to a 6-month high of $111.61 per barrel, while days low stood at $111.06. The contract surged 1% on Friday and settled the week 0.10% higher after advancing 2.6% in the preceding two five-day periods.
Both benchmarks extended gains on Monday amid geopolitical turmoil in Syria, which threatens to spread into neighboring countries. The Syrian regime led by President Bashar al-Assad is suspected to have used chemical weaponry against civilians which resulted in the deaths of thousands. Syrias official comments stated the gas attack was terrorist driven and agreed to let United Nations inspectors to enter the country and review the suspected areas.
Timothy Radford, a global analyst at investment firm Rivkin in Sydney, wrote in a note: “With the Syrian government allowing the UN to inspect the chemical weapons site to show the attack was in fact terrorist driven and not government related, the likelihood of a U.S. led military conflict remains unlikely, until at least more information is shed on the matter.”
Fed stimulus outlook
The oil market was also underpinned by downbeat U.S. data, which eased speculations that the Federal reserve will wind down its monetary easing program in September. The U.S. Commerce Department reported on Friday that 0.394 million new homes were sold in the U.S. in July, marking a 13.4% decline. This was the lowest level in nine months and the steepest drop in three years. New Homes Sales completely mismatched projections for a rise to 0.490 million units sold. At the same time, June’s reading received a downward revision to 0.455 million from the previous reading of 0.497 million homes.
This comes after St. Louis Federal Reserve Bank President James Bullard, one of Fed’s monetary stimulus supporters, said that the central bank should take time and assess the U.S. economy and inflation thoroughly before tapering the bond purchases. He commented for Reuters: “I don’t think we have to be in any hurry. Inflation is running low and we have got mixed data on the economy. We can afford to be very deliberate in our decision making.”.
Meanwhile, Atlanta Fed President Dennis Lockhart, also a Quantitative Easing supporter, said he will vote yes for decelerating the bond purchasing program if the economic data is supportive. He commented for Reuters: “I would be supportive in September as long as the data between now and then basically confirm the path we’re on. I am confident in a continuation of this sort of moderate growth path.”
Also supportive for oil, Mexicos output fell by 1.5% to 2.482 million barrels per day in July, state-run oil monopoly Pemex said. In the U.S., the National Hurricane Center said on Sunday that the tropical storm Fernand strengthened over the western Bay of Campeche but it is expected to head westward away from oil installations. It will however remain under observations.
Prices were also underpinned as a report by CNBC projected that following the U.S. shale oil boom which increased the countrys self-sustainability, China will become the worlds largest oil importer by 2017. The Asian nation, which accounted for 11% of global consumption in 2012, is expected to as much as double its oil imports price tag to $500 billion in 2020, according to Wood Mackenzies report.
Meanwhile, supply outages from Libya are expected to ease as oil exports from the Marsa al Brega port, one of the four terminals where force majeure was declared, have resumed. The restart is expected to increase the current 500 000 barrels per day exports by 90 000 bpd.
Market players will be keeping a close eye on this weeks U.S. economic data to further gauge Quantitative Easings tapering prospects. On Monday, Durable Goods Orders are expected to have declined by 4% in July. Tuesdays Consumer Confidence is projected to have fallen to 79.3 in August from 80.3 in the preceding month. The S&P/Case-Shiller Composite-20 Home Price Index might also post a decline. Wednesdays Pending Home Sales might have advanced by 0.1%. On Thursday, the Preliminary Revised GDP is likely to have grown by 2.3%, while consumer spending and core consumer spending (Personal Consumption Expenditures) probably surged by 1.8% and 0.8% in the second quarter respectively. Initial Jobless Claims probably fell by 1 000 in the week ending August 24. On Friday, Personal Income and Spending are expected to have advanced in July but at a slower pace than in June. Core PCE on monthly and annual basis likely rose in July and the Chicago PMI and Final University of Michigan Confidence are projected to have advanced in August as well.
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