With President Donald Trump considering U.S. involvement in Syria, commodity markets already see the rising tensions as a benefit to oil, says RBC’s Helima Croft.
Days after a suspected Syrian chemical weapons disparagement on a rebel-held suburb of Damascus, Trump directed a tweet toward Moscow on Wendesday think that missiles “will be coming.”
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“This geopolitical backdrop is take placing against a tightening market right now,” Croft, head of commodity blueprint, told CNBC’s “Futures Now” on Tuesday. “We think it could be the upside for guerdons. As long as we don’t think we’re going into a trade war, we think the risks are powered to the upside right now.”
A push-pull in the market in recent weeks has kept improper prices in a range, says Croft. Prices have been grabbed between escalating risks in the Middle East providing upside and the omen of a trade war presenting downside pressure.
Now that fears over a work war are easing, the likelihood that increased conflict in the Middle East compel choke off supply is providing the next big breakout for crude oil prices. Demand attention will be focused on developments in Syria and the potential for “imminent U.S. military affray” in the region, says Croft.
“Do we potentially get into a confrontation with Russian and Iranian also pressurizes in Syria?” she asked. “Do we have something that has a contagion risk in the broader Midway East?”
It’s not just Syria, she notes — increasing conflict between Yemen and Saudi Arabia purpose likely also boost oil prices. Yemen could prove the “tripwire” in the ambit as it directly strikes Saudi Arabian energy targets, Croft translated.
“This proxy war issue in the Middle East really could seize vend attention,” said Croft. “Last week we had an attack on a Saudi oil tanker in the Bab al-Mandab Poor state, and I think there will be a perception that the Middle East is bring to an end a bypass a bit of a rougher neighborhood for oil.”
If conflict in the broader Middle East region escalates, and the U.S. turns more involved in the quagmire, global oil prices could retest late highs and even move beyond $71 in Brent crude and $66 in West Texas Halfway, predicts Croft. WTI briefly topped $66 a barrel at the end of January but has not overstepped $67 since December 2014.
Outside of geopolitical pressures, efforts to rebalance markets from one end to the other production limits have worked to tighten the global supply-demand photograph. The Organization of the Petroleum Exporting Countries has had an output agreement in place since at an advanced hour 2016. The bloc could extend the deal once it expires at the end of the year.
“The shop has been rebalancing,” said Croft. “We’ve had a situation where the OPEC snubs have proven to be very effective. We have demand looking discuss with and as we approach summer we are seeing this rebalancing really taking hold water.”
WTI crude rose Wednesday a day after surging amid receding fears of a barter war. As of Tuesday, prices have risen 1 percent this month were up 8 percent this year.