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SAUDI OUTPUT ‘KEY’

Oil could hit $150 if Syria war spreads: SocGen

London, August 28, 2013

Brent crude oil is likely to rise towards $125 a barrel if the West launches air strikes against Syria and could go even higher if the conflict spills over into the rest of the Middle East, Societe Generale said on Wednesday.

Michael Wittner, oil analyst at the French bank, said the North Sea crude oil benchmark could surge as high as $150 per barrel if the war affects key oil producers such as Iraq, although any jump in prices would probably be brief.

"We believe that in the coming days, Brent could gain another $5-10, surging to $120-$125, either in anticipation of the attack or in reaction to the headlines that an attack had started," Wittner said in a note to clients.

"If the regional spill-over results in a significant supply disruption in Iraq or elsewhere, Brent could spike briefly to $150," he added.

"In our base case, we assume an attack begins in the next week. If it takes longer, and there are no signals that an attack is imminent, the oil price uplift from the entire Syrian situation will start to fade."

Brent crude oil futures for October hit a six-month high of $117.34 on Wednesday on fears that a regional conflict could affect supplies at a time of restricted output from other oil producers in the Mena region.

Wittner said if oil supplies were curtailed by a military conflict the oil market would rely on extra output from Saudi Arabia, the only member of the Organization of the Petroleum Exporting Countries with sufficient spare oil production capacity.

"The Saudis could handle most likely scenarios, but the markets will look at the shrinking spare capacity that remains after any disruption is made up, and that would be bullish."

Wittner said oil consumer countries might consider releasing part of their considerable strategic oil reserves if oil prices rose too high or supply shortages became acute. – Reuters




Tags: Middle East | Syria | oil price | war | Société Générale | SocGen |

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