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Oil Prices Top $100 on EU Optimism, Risk Premium


Oil prices rallied on renewed optimism over debt problems in the European Union and concerns over energy security in the Middle East after an explosion of a crude oil pipeline in Syria.

An explosion set on fire a crude oil pipeline feeding a Syrian oil refinery in the city of Homs.
Source: YouTube

WTI oil futures jumped over $2 topping $101 a barrel and Brent crude prices surged past $113 after open at the NYMEX at 9am ET.

The upside momentum that was already evident in the overall strength of petroleum prices, global equities and the euro was fueled further by media reports that an explosion had set a crude oil pipeline feeding Syria's Homs refinery.

"Traders are buying on the headline and worrying about details later," said Again Capital founder John Kilduff, adding that it underscores the geopolitical risk that exists in the oil market.

However, to put it in perspective, Syria is the second smallest oil producer in the Middle East (only Yemen produces less oil). Syria produces less than 300,000 barrels per day of crude oil on average and only about 130,000 barrels of that oil is exported daily, according to analysts at Eurasia Group. The amount of exports has also been significantly reduced due to sanctions imposed by the EU.

However, it is not the loss of crude from Syria but the risk to energy security overall in the region that concerns traders. This is not the first attack in the Homs area in recent months and it is not clear if this was a military attack on rebel forces or vice versa.

Eurasia Group analyst Ayham Kamel tells me that while the explosion "does not appear to be a serious threat" at this time as operations at oil producers are continuing, the oil infrastructure in the region still faces "considerable risks."

Follow Sharon on Twitter: @sharon_epperson


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