NEW YORK: Brent crude jumped to a six-month high, rising more than $3 to top $114 a barrel and sent equities worldwide substantially lower Tuesday as Western powers considered a military strike against Syria following last week’s suspected chemical weapons attack.
U.S. crude also gained nearly $3 a barrel as fears mounted that Western intervention could further destabilize the Middle East, which pumps a third of the world’s oil.
Western officials told the Syrian opposition to expect a strike against President Bashar Assad’s forces within days, according to sources who attended a meeting between envoys and the Syrian National Coalition in Istanbul.
“As the rhetoric ratchets up around Syria, the geopolitical risk premium in the price of oil is once again widening,” Dominick Chirichella of Energy Management Institute said.
Brent crude rose $3.29 to $114.02 a barrel. During the session it hit a six-month high of $114.35, and was on track for its biggest daily percentage gain since early May.
U.S. crude rose $3.09 to $109.00 a barrel after earlier hitting $109.32, matching its high for the year so far. It fell 0.5 percent Monday when data showed U.S. durable goods orders had dropped the most in nearly a year.
While the White House Tuesday ruled out any military effort to oust Syrian President Bashar Assad from power, oil market watchers pointed to signs that Washington and its allies were edging toward a limited use of force against the Syrian regime.
White House spokesman Jay Carney said Obama had not made a decision on how the United States would respond to what it believed was an attack on civilians by the Syrian government.
The United States Monday put Assad on notice that it believed he was responsible for using chemical weapons against civilians last week in what Secretary of State John Kerry called a “moral obscenity.”
“There’s a lot of air in this market, and it’s now hungry for the next headline,” commented Stephen Schork, the editor of The Schork Report in Villanova, Pennsylvania.
“So if we see more belligerent rhetoric, like Kerry’s ‘moral obscenity,’ we’re due for another leg up and you can’t really sell.”
President Francois Hollande said Tuesday that France stood “ready to punish” the perpetrators of a chemical attack in Damascus last week and would increase its military support to the Syrian opposition.
Declining Libyan production also supported prices. Libya’s largest western oilfields closed when an armed group shut down the pipeline linking them to ports, its deputy oil minister said Tuesday, reducing its oil output to a trickle.
It is off nearly 60 percent to 665,000 barrels per day due to a monthlong disruption by armed security guards, who shut down main export terminals, its oil minister said.
With U.S. stocks rising on geopolitical tensions and adding to the selloff, U.S. Treasury Secretary Jack Lew said it was essential for Congress to raise the government’s borrowing limit by mid-October or the country would face an unprecedented default.
He warned that the administration would not allow for it to be used as political leverage.
The Dow Jones industrial average fell 135.06 points or 0.9 percent, to 14,811.4, the S&P 500 lost 20.83 points or 1.26 percent, to 1,635.95 and the Nasdaq Composite dropped 65.469 points or 1.79 percent, to 3,592.102.
In Europe, stocks registered their biggest daily drop in two months as investors took profit on some of this summer’s best performers and to buy insurance against future losses.
A rise in U.S. government debt prices and stronger Swiss and Japanese currencies suggested the flight to safety was gathering momentum.
The benchmark 10-year U.S. Treasury note was up 17/32, the yield at 2.7233 percent.
The safe-haven yen and Swiss franc gained and riskier currencies like the Australian and New Zealand dollars fell as geopolitical tensions rose.
The Swiss franc and the yen usually climb in times of financial market stress and geopolitical uncertainty, while growth-linked higher-yielding currencies sell off.
Spot gold rose to its highest since early June at around $1,420 an ounce. Gold has rallied more than $200 since late June, when prices hit three-year lows.
Emerging market currencies such as the Turkish lira and the Indian rupee bore the brunt of the flight as doubts over the Syrian situation added to pressure from investors’ positioning for an end to the supply of cheap dollars from the U.S. Federal Reserve’s monetary stimulus.
The Indian rupee lost as much as 2.5 percent to reach a record low of 65.93 per dollar, while Turkey’s lira weakened to 2.03 to the dollar, also a record low. Turkey’s share index also slid.