Why Oil Prices May Remain Strong, War or No War

Oil Prices
Jim Cole/AP

By Katie Holliday

Uncertainty over rising tensions in Syria has driven oil prices to fresh highs in recent weeks, but analysts say the bullish sentiment is expected to stay regardless of whether or not the scenario escalates into a full blown war.

"Even if there is a war in Syria or no war in Syria I think oil will remain strong," said Sean Hyman, editor of Moneynews at the monthly newsletter Ultimate Wealth Report. "WTI could go from $108 to $117 [a barrel] and Brent could go from $115 to $125 [a barrel] very easily."

"You've got strikes of oil workers in Libya ... you've got Egypt really still in limbo with their government ... and you've also still got what could turn into a war in Syria. I believe you've got a big case for oil and oil stocks to go higher," he said.

Syria tensions were renewed this week after key U.S. congressional leaders voiced their support for President Barack Obama's call for a military strike against Syria to retaliate against its use of chemical weapons against civilians, making the likelihood of action look more imminent.

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Libya's oil production has fallen to about one sixth of its pre-2011 civil war levels in recent weeks due to a month-long disruption by armed security guards who shut the country's main export ports. Meanwhile an attack on a ship passing through the Suez Canal over the weekend has flagged continued geopolitical risk in Egypt.

Han Pin Hsi, global head of commodities at Standard Chartered, said if Syria tensions ease, he doubted Brent would spike as high as $125 a barrel. It would likely trade in a $105-$115 a barrel range, while WTI would trade at a $5 discount to Brent, he said. "Oil will remain firm because of risks to supply from other oil producers: Iran is not coming back quickly, there are issues with Libya and tensions in the Middle East North Africa area will keep oil firm," he said.

However, oil could reach $125 a barrel if tensions in Syria escalate, Hsi added.

"It's anyone's guess what would happen to oil then, but we would probably see a spike. But oil at $125 a barrel would be a significant headwind for the already fragile global economy, causing a lot of problems, so it would not be sustainable for long," he said.

Last week, Societe Generale analysts laid out a case for Brent to spike to $150 a barrel temporarily if Syria's supporters seek to punish the U.S. and its allies for a military strike, a development many industry watchers see as a worst case scenario.

Last week U.S. crude reached its highest level in over two years, while Brent crude moved to its highest level since February. They have since pulled back. On Wednesday, Brent traded at $115.77 a barrel at mid-morning in Asia, while WTI traded at $108.29 a barrel.

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