Saudi Ambition, Middle East Tensions Send Brent Prices to 2014 Highs

China bowing to U.S. pressure supported crude prices on Tuesday. File Image / Pixabay

The analogy of crude prices acting more like a see saw than following any fundamentals-based trajectory was reinforced on Tuesday, when Brent unexpectedly soared to its highest level since 2014 - on worries from Wall Street that military action could soon occur in the Middle East.

After U.S. president Donald Trump cancelled several planned trips to hunker down with military officials to decide an appropriate response to an alleged chemical weapons attack carried out by Syrian president Bashar Assad against his own people, West Texas Intermediate jumped $2.09 to settle at $65.51 per barrel, while Brent rose a whopping $2.56 to $71.21 per barrel, the theory motivating traders being that military action could interrupt crude supply chains and complicate overseas shipments.

Preoccupation with possible retaliation for a Syrian gas attack - which hawks say is long overdue after eight years of an Obama presidency in which nothing was done to curb similar atrocities - did not take away from emerging good news in the form of Xi Jinping, president of China, promising to open his country's economy further, lower import tariffs on cars, and better enforce international laws governing intellectual property (moves widely seen as an attempt to reduce trade tensions between Washington and Beijing and which were said to support crude prices).

Crude also benefited from Bloomberg reporting that Saudi Arabia is seeking $80 Brent to bolster the value of state run Saudi Aramco before its initial public offering, now expected to launch in 2019.

This in turn caused the Energy Select Sector SPDR Fund to surge by as much as 3.8 percent, on track for its biggest gain since the Organization of the Petroleum Exporting Countries (OPEC) and Russia agreed to curb crude production in late 2016.

Roberto Friedlander, head of energy trading at Seaport Global Securities, summarized Tuesday's trading excitement by remarking, "There are headlines of a U.S. carrier group heading to the Middle East, the Saudis are looking for $80 Brent crude, and this is ahead of API inventories.

"The market [also] bounced this morning after the Chinese president's more dovish comments on the trade war" - the implication being that the more China relents to appease the U.S. (which analysts say is more than likely), and the more aggressive the U.S. becomes in Syria, crude prices could climb to record highs over the short term.

However, geopolitical skirmishes and trade tensions are fleeting in the grand scheme of things, and those more concerned with crude's longer-term performance see trouble ahead: earlier this week, Robert Rapier, director of alternative fuels technology at Advanced Green Innovations, reiterated the concerns of many experts when he pointed out that too little industry investment, too few new discoveries, and growing demand will cause a global crude shortage crisis, the effects of which may start to become apparent as early as 2020.