Oil spikes as US strike against Syria roils global markets

Futures in New York and London surged more than 2pc to the highest in a month. Photo / 123RF

Oil jumped as the US cruise-missile attack against Syria roiled global financial markets.

Futures in New York and London surged more than 2 percent to the highest in a month. The strike early Friday morning targeted hangars, planes and fuel tanks at one Syrian military airfield, according to a U.S. official. Syria borders Iraq, OPEC's second-biggest crude producer. The news rippled across financial markets, with the yen and gold advancing as stocks declined.

"It seems today's spike is just a knee-jerk reaction to the missile strike," said Thomas Pugh, a commodities economist at Capital Economics.

"Syria produces little oil itself so the spike probably reflects the risk of increased tensions between the US and Russia or Iran."

Oil had struggled to extend a rally beyond $51 a barrel as concern over surging US supplies countered optimism around a possible extension to production cuts led by the Organization of Petroleum Exporting Countries.

The strike against Syria comes two days after Bashar Assad's regime used poison gas to kill scores of civilians, drawing international condemnation while President Donald Trump called it "an affront to humanity."

West Texas Intermediate for May delivery on the New York Mercantile Exchange rose as much as $1.24 to $52.94 a barrel, the highest level since March 7, and traded at $52.53 by 9:36 a.m. in London.

Prices are up 3.9 per cent this week, heading for a second weekly gain. Total volume traded was about 217 per cent higher than the 100-day average.

Brent for June settlement on the London-based ICE Futures Europe exchange surged as much as $1.19 to $56.08 a barrel, also the highest level since March 7. Prices are up about 4 percent this week. The global benchmark crude traded at a premium of $2.74 to June WTI.

The oil price spike may be temporary as long as the military action is contained and doesn't spread into Iraq, as Syria is no longer a significant producer, Nomura Holdings Inc. said in a note. Neighboring Iraq pumped 4.43 million barrels a day last month, according to data compiled by Bloomberg.

Syrian output has slumped during the ongoing conflict. Production of petroleum and other liquids dropped to about 35,000 barrels a day in 2016, making it the 66th-biggest producer, according to the Energy Information Administration. The nation pumped an average 400,000 barrels a day of oil between 2008 and 2010.

A drop in oil prices is still possible in the next few weeks amid rising US crude stockpiles, according to Capital Economics' Pugh. "However, taking a step back, economic growth in Europe and China is looking strong, which should support oil-demand growth," he said.