Crude oil tankers sit docked at a port. (Photographer: Simon Dawson/Bloomberg)

Crude Hits Three-Year High as Global Tensions Rock Oil Markets

(Bloomberg) -- Geopolitics gripped crude markets from New York to London, pushing prices to levels last seen in 2014.

Futures in New York jumped 2 percent on Wednesday. Saudi Arabia, the world’s biggest oil exporter, intercepted a missile attack over the kingdom’s capital just hours after U.S. President Donald Trump warned American missiles soon may strike Syria. A U.S. government report on expanding domestic oil inventories barely fazed traders caught up in the rush of world events.

“People are paying attention to geopolitical risks,” said Matt Sallee, who helps manage $16 billion in oil-related assets at Tortoise in Leawood, Kansas. Traders “are more interested in the big picture.”

Crude Hits Three-Year High as Global Tensions Rock Oil Markets

“Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and ‘smart!’,” Trump wrote on Twitter.

Meanwhile, Saudi Arabia said it intercepted a ballistic missile over Riyadh and shot down two drones in other parts of the country. A measure of oil market volatility jumped to levels last seen in mid-February.

“The geopolitical risk has jacked the market up to three-year highs. This is the first day in a long time that the direction of the crude market and the direction of the stock market have diverged,” said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. The correlation “stops with heightened geopolitical risk.”

West Texas Intermediate for May delivery surged $1.31 to settle at $66.82 a barrel on the New York Mercantile Exchange. Total volume traded on Wednesday was about 74 percent above the 100-day average.

Brent for June settlement climbed $1.02 to end the session at $72.06 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $5.32 premium to June WTI.

Yemen Conflict

Loud blasts were heard in the sky above Riyadh on Wednesday. Two other missiles were intercepted over the southern areas of Jazan and Najran, authorities said. The Saudi-led coalition fighting the Houthis in Yemen said it also downed a drone targeting an airport in the southwestern province of Abha and another in Jazan.

In the U.S., Energy Information Administration data on Wednesday showed swelling surpluses at the biggest domestic storage complex as well as nationwide last week. American crude production also climbed, while exports of American oil declined to 1.21 million barrels a day.

“If you look through what drove the weekly build, it’s pretty much explained by the fact that exports were the second-lowest they’ve been all year,” Sallee said.

Other oil-market news:

  • Gasoline futures added 1.3 percent to settle at $2.0676 a gallon on Wednesday, the highest level since August.
  • The state of the world is cause for concern though Russia hopes “common sense will prevail,” President Vladimir Putin said at a Kremlin ceremony to receive credentials of new foreign ambassadors.
  • Saudi Arabia sees “strong fundamentals” and “reasonable”’ balance in the short term, according to Energy Minister Khalid Al-Falih.

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