Crude Rises to Five-Week High on Escalating Tension in Syria

West Texas Intermediate crude rose to a five-week high on speculation that tension in Syria will disrupt Middle East supplies.

Prices jumped as much as 3 percent as Foreign Minister Walid al-Muallem said today Syria’s defenses will “surprise” the world should the U.S. and its allies decide on military strikes. Western powers told the Syrian opposition to expect a strike against President Bashar al-Assad’s forces within days, Reuters reported, citing sources who attended a meeting.

“The geopolitical tension in Syria certainly escalated one notch higher and it’s a significant notch,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “It’s the implication of what a broader conflict in Syria would mean to key suppliers in that region. The market simply positioned itself long and waited for the next turn of events.”

WTI for October delivery climbed $2.91, or 2.8 percent, to $108.83 a barrel at 10:26 a.m. on the New York Mercantile Exchange after increasing to $109.09, the highest price since July 19. Trading was 49 percent above the 100-day average for the time of day.

Brent for October settlement increased $2.71, or 2.5 percent, to $113.44 on the ICE Futures Europe exchange after rising to $113.60, a six-month high. Volume was 84 percent above the 100-day average. The European benchmark’s premium to WTI narrowed to $4.61 from $4.81 yesterday.

‘Hearing Drums’

Syria is “hearing the drums of war all around us,” Muallem said at a televised news conference in Damascus. The government hasn’t obstructed the United Nations probe into its alleged use of chemical weapons, he said, adding that the U.S. may be carrying out psychological warfare.

Secretary of State John Kerry said yesterday that President Barack Obama will hold Syria accountable for the “indiscriminate slaughter” of its own people with chemical weapons. The evidence is “undeniable” that chemical weapons were used against residents of a Damascus suburb last week and that President Bashar al-Assad’s regime has the toxic weapons and the ability to deploy them, he said.

Obama hasn’t decided whether the U.S. will take military action, according to an administration official who asked for anonymity to discuss internal deliberations.

Property Values

“It’s not the question of if they are going to intervene, but just when and how,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. “The issue is whether such intervention will pull in neighboring countries.”

Syria borders Iraq and is near Iran, countries that together hold almost a fifth of the Organization of Petroleum Exporting Countries’s output capacity, according to Bloomberg estimates. Syria itself produced just 164,000 barrels a day of the 28.3 million pumped in the Middle East last year, according to BP Plc’s Statistical Review of World Energy.

“Syria itself is not important for oil,” said Soozhana Choi, Deutsche Bank AG’s head of energy research in Washington. “Prices are up because of the broader ramifications of an attack. There are concerns about what Syria’s allies do in response to an attack on the Assad regime. There is a worry that Iran may shelve negotiations over its nuclear program in response.”

Iran Warning

Iran, a longtime Syrian ally, warned that a U.S. attack on Syria would drag the whole region into the conflict. Any use of military force in Syria will “engulf the whole region,” Foreign Ministry spokesman Abbas Araghchi told reporters in Tehran today, in televised comments.

“The real risk is if Syria decides to retaliate in any kind of way, or in an even worse scenario, if Iran gets pulled in or Russia gets pulled in or one of Assad’s allies,” Walker said. “We are going to see the price really shoot up.”

WTI also rose as U.S. home prices increased and Libya’s output declined. The S&P/Case-Shiller index of property values in 20 cities rose 12.1 percent in June from the same month in 2012 after rising 12.2 percent in the year ended in May, which was the biggest gain since March 2006, the group said today in New York.

Libya National Oil Corp. Chairman Nuri Berruien said the nation’s oil output may have dropped below 200,000 barrels a day amid protests, the lowest level since the 2011 uprising against Muammar Qaddafi.

The El Feel, or Elephant, oil field was halted by protesters last night, he said today in an interview in Tripoli. The North African nation’s export capability has been crippled since members of the Petroleum Facilities Guard seized control of terminals last month to press for better working conditions.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net