Our market view - week 38
Oil prices rallied in August on rising tension over Syria’s use of chemical weapons and the sharp drop in Libyan production. Prices turned lower as the Middle East war fears eased last week.
Expectations of an imminent US attack on Syria pushed oil prices above $117 at the end of August as investors worried the conflict would affect the huge oil exporters of the Gulf, which pump around a third of the world’s oil. But tensions have eased after the US agreed to call off military action against Syria. On Saturday, US and Russia agreed to back a nine-month UN programme to destroy Assad’s chemical weapons. However, there are huge technical difficulties in destroying one of the world’s biggest chemical arsenals in the midst of civil war.
A Syrian minister said these agreements are a victory for Syria, and rebels report that Assad has stepped up the offensive with conventional weapons now.
Global markets remain tight with more than one million barrels per day of Libyan crude oil exports unavailable due to civil unrest and strikes, but supplies are expected to improve over the next few months. Libya declared force majeure on three ports Thursday, following several weeks of shutdown.
Supply constraints and cooler weather lifted gas prices last week. Colder weather and UK Rough storage maintenance means demand will be met by higher imports over the next week, which will increase price volatility.
European gas demand in the first half of 2013 was flat compared to last year, but corrected for temperatures demand was down.