The UN warns against escalating tension in the Middle East. Oil prices increased over the weekend after Israel carried out a second air strike in Syria, aimed at stopping Lebanon’s Hezbollah from acquiring weapons that could be used against Israel. Iran called on the region to unite against Israel.
Rising geopolitical worries are increasing the risk premium on oil, and the fear is that the conflict may lead to a wider involvement of other nations. The conflict could add pressure on US to intervene in Syria, but the government faces tough questions on how it can help without adding to the conflict. President Obama has said he has no plans to send ground troops to Syria.
The upside in prices will be capped by demand growth concerns as the global economic outlook remains bleak amid ample supplies.
Gas prices are moving down as temperature-related demand is falling. The downside is limited by very low storage level and supplier behavior, as the suppliers to the European market are always in a position to reduce supply quickly if prices are not satisfying.
European storage levels need to be rebuilt before the winter, which may increase demand over the summer. UK long-term Rough storage held 0.47 billion cubic metres (bcm) last week, which is 2 bcm less than at the same time last year.
Stronger Russian flows are evident as a result of improved terms between Gazprom and some of its largest buyers. Gazprom’s recent 2012 review showed that they want to move downstream in gas and power, and the company is willing to use its supply position as a carrot for incremental investments. Natural gas could solve future intermittency problems that are emerging with intensified use of renewables.