Crude oil prices continued to rally in early trading on Monday, with July contracts for West Texas Intermediate crude climbing as high as $98.74, marking the highest level for the most actively traded contract since February 15, before a late-day sell-off took the black gold back to flat levels.
Coming into June, crude prices were testing one-month lows and threatening to slip into a stronger downward trend. Generally bearish information last week about higher-than-expected increases in crude stockpiles were shirked-off as investors focused on the United States saying that it would arm rebels in Syria after President Bashar al-Assad’s regime “crossed a line” by allegedly using chemical warfare on the dissidents.
The United Kingdom has also voiced its disapproval of Syria using nerve-gas attacks, but has not taken an official stance to arm rebels. British Prime Minister David Cameron said that Assad is a “brutal dictator…using chemical weapons under our nose.”
Syria’s civil war, now in its third year, shifted power back to Assad earlier this month when his forces, with the help of Lebanon’s Hezbollah militants, took control of Qusair a key town near the Lebanon border.
Syria is not a significant player in the oil business, but investors are concerned that the recent activity is potentially signaling the spread of the war into surrounding oil-rich nations and world powers that could threaten supply chains. Hezbollah (an Shia Muslim movement formed during the Iranian Revolution in 1979) leader Hassan Nasrallah said last week that the Lebanese armed group will continue fighting for Assad and be “wherever we need to be,” according to the Aljazeera.com website.
Russian President Vladimir Putin provides military support to Assad as well, further fueling the idea of potentially a larger-scale conflict. The Russian government has rebuked the U.S. decision to support the Syrian opposition and argued that there is no proof of chemical weapons being used.
It’s expected that the war in Syria is going to overshadow discussions about international trade, the euro zone and other topics at the ongoing meeting of the world’s eight most powerful countries ongoing in Lough Erne, Ireland this week.
Some of the risk of escalating Middle East tensions and the threat of an attack on Iran by Israel were subdued over the weekend with Iranian moderate Hassan Rohani winning the presidential election by a landslide.
Oil received an early lift on Monday from some U.S. economic data. The Federal Reserve released their Empire State Manufacturing Index showing an improvement from a negative 1.4 reading in May to a positive 7.8 level in June, indicating that business activity in the New York area picked-up some in the past month. Separately, the National Association of Home Builders/Wells Fargo Housing Market Index climbed to 52 for June from a 44 in May. Readings over 50 indicate that builders are more optimistic than pessimistic about the trend of housing sales. It was the first time since April 2006 that the index broke about 50 and the 8-point move was the biggest one-month jump in more than a decade. Both reports topped economist forecasts, lending to the idea of a strengthening economy.
Heading towards the closing bell, only five of the 53 energy companies in the S&P 500 are trading down, comprised of Marathon Petroleum Corp. (MPC), Consol Energy, Inc. (CNX), Peabody Energy Corp. (BTU), Spectra Energy Corp. (SE) and Valero Energy Corp. (VLO). XLE, the Energy Select Sector SPDR fund, is up about 1.1 percent.
WTI crude futures for July delivery traded in a range of $98.74 to $97.38 as of 2:45 PM EDT, currently holding $97.88, for a 3-cent daily gain in electronic trading at the New York Mercantile Exchange.