Where Syria Fits in the World’s Oil Supply System 

 

Oil futures surged to a six-month high Tuesday as traders bet that a possible U.S.-led military strike in Syria could disrupt the security of crude supplies in the Middle East.
Here’s why:
Syria itself isn’t a major oil producer. The country’s exports have been severely restricted by U.S. and European Union sanctions in recent years and its energy infrastructure has been damaged by unrest. However, it lies in close proximity to pipelines and sea routes that transport much of the world’s crude.
To the southwest is the Suez Canal, one such chokepoint, which connects the Red Sea and the Gulf of the Suez with the Mediterranean Sea. The canal transports about 800,000 barrels of crude and 1.4 million barrels of petroleum products daily, according to the U.S. Energy Information Administration.
Another regional oil shipping route potentially threatened by the Syria crisis is the Sumed, or Suez-Mediterranean, pipeline, also in Egypt, which moves oil from the Persian Gulf region to the Mediterranean. The Sumed handles 1.7 million barrels of crude oil per day, the EIA said.
In a research note, JBC Energy said that “although currently there are no indications that the canal and/or pipeline are not operating under normal conditions, a disruption of oil flows through these two strategic routes would definitely have repercussions.”
To the north of Syria is Turkey, which has the Kirkuk-Ceyhan pipeline that carries a large supply of Iraqi oil to the Mediterranean, and the Baku-Tblisi-Ceyhan pipeline which transports oil from Central Asia. Oil prices have risen in the past when those pipelines were sabotaged.
And to the east of Syria are the oil fields of northern Iraq, a country that produced 3 million barrels of crude a day in 2012.
Even before the Syria situation escalated over the past 24 hours, market participants were already monitoring violence in the Middle East as Egypt’s military overthrew President Mohammed Morsi last month and protests in Libya have led to the closure of key oil terminals and export declines.
However, rising tensions and even conflict in the region don’t guarantee a disruption to oil supplies. For example, the Egyptian Revolution of 2011, in which President Hosni Mubarak was ousted, didn’t have a major effect in oil flows through the Suez Canal. In fact, according the EIA, the 2.97 million barrels of crude oil and refined products that were transported through the canal in both directions last year and was the highest to date.
Meanwhile, other Middle Eastern nations, such as Saudi Arabia, which has the world’s largest oil production capacity at 9.8 million barrels of crude a day, also have the ability to ramp up their own production.
With these possible mitigating factors in mind, October light, sweet crude on the New York Mercantile Exchange was recently up a sharp 2.8% at $108.93, but earlier only equaled a recent high of $109.32 reached on July 19.
Inventories also remain at healthy levels. Combined government-held and commercial oil inventories in the major industrialized countries that make up the Organization for Economic Cooperation and Development, were sufficient to cover 93 days of forward demand at the end of June, according to the International Energy Agency, the OECD’s energy policy watchdog.
That compares with 91 days of forward demand cover in June 2011, when the EIA led a coordinated drawdown of 60 million barrels of oil from inventories to cover supply shortages caused by the Libyan civil war. The U.S., the world’s largest oil consumer, accounted for half of the response to the Libyan crisis and sold 30.64 million barrels of crude oil from its Strategic Petroleum Reserve.
In the meantime, traders will remain focused on the Syrian crisis as about 4.5 million barrels of oil a day flow through the Suez and Sumed, while Turkey’s port of Iskenderun is an export point for crude piped from Iraq and Azerbaijan.


–David Bird and Dan Strumpf contributed to this post.

Source:  http://blogs.wsj.com/moneybeat/2013/08/27/where-syria-fits-in-the-worlds-oil-supply-system/