Oil staged a brisk rally on Friday, with U.S. oil jumping to its highest level in more than 2 years, bolstered by speculation that the Federal Reserve will maintain its stimulus and renewed concerns about a potential conflict in Syria.
In the wake of weaker-than-expected U.S. jobs data, concern that a potential U.S. strike on Syria would spread unrest and further disrupt Middle East supplies boosted oil prices. Those fears were revived on Friday, after Russian president Vladimir Putin said his country would continue support for Damascus in case of a Western bombing--raising new fears of a widening conflict.
Global sentiment on action against Syria remains sharply divided. President Barack Obama appears isolated in his push for a strike as he attends the G-20 summit in Europe, as verbal jabs from Russia has stolen attention from the rest of the agenda. As Obama attempts to wrangle support in Washington for a strike, international support has been soft--suggesting the U.S. may have to shoulder the burden of another Middle East conflict.
Although Syria is not a major oil producer, analysts fear a conflagration could radiate across the region where oil supplies are already crimped. Production from Libya and Iraq have been constrained by ongoing civil conflicts that have wreaked havoc on the oil infrastructure of both countries.
Meanwhile, other regions--including Venezuela and Sudan--have taken more than 7.4 million barrels per day offline, according to an analysis from Capital Economics. Analysts expect supply to recover eventually, yet not quickly enough to curb a short-term spike in prices.
"Even if just half the constrained supply we have identified were to re-enter the world market, it would be the equivalent of an additional Mexico or Kuwait," Capital Economics wrote on Friday. "And assuming all of the constrained supply comes back onto the market gradually over the next five years, it will be enough to completely absorb the projected increases in world demand."
Meanwhile, the soft employment data has increased the odds that the Fed will continue to pump-prime the economy with cheap liquidity. That is seen as beneficial to commodity prices.