LONDON: Brent crude oil dropped below $116 a barrel yesterday as the possibility of a delay in a US-led military strike on Syria helped calm concerns over Middle East oil supplies.
Brent crude for October delivery hit a low of $114.94 a barrel, down $1.67, before recovering to trade around $116.00 by 1350 GMT. It jumped over 5 percent in the previous two sessions, posting its strongest two-day gain since January 2012.
October US crude fell $1.50 to a low of $108.60 a barrel before rallying to around $109.40, following a near 4 percent gain over the past two days. “The market is reassessing the supply implications of the conflict in Syria,” said Eugen Weinberg, global head of commodities at Germany’s Commerzbank.
Oil has jumped this week to multi-month highs on fears that the potential strike on Syria could spread unrest to major oil producers in the Middle East and disrupt supply. Even without disruption to supplies from key oil producers such as Saudi Arabia and Iraq, the oil market already has a host of supply issues to worry about.
Iraqi oil production has fallen by around 500,000 b/d due to maintenance and problems with local pipelines, while output has also been restricted from the North Sea, the Gulf of Mexico, the Black Sea and Nigeria.
Analysts say between 2m b/d and 3m b/d of oil has been removed over the last few months, tightening a market that otherwise would have been well supplied. US energy consultancy PIRA said that Saudi Arabia is set to make up for the shortfall, pumping 10.5m b/d of crude on average throughout the third quarter, 1m b/d above the second quarter and its highest quarterly level of production ever.
PIRA CEO Gary Ross described the Saudi output as a response to “the tightest physical balance on the world oil market I’ve seen for a long time”.
Brent’s premium over US crude futures has risen to more than $6 a barrel, the widest since June, on expectations of increasing supply at the US contract’s delivery point in Cushing, Oklahoma.