On Monday, crude further extended previous gains and the front-month futures contract on Brent (ICE) even hit a fivemonth high. This time, news that regime of Syrian president Bashar al-Assad should have undeniably used chemical weapons against its citizens (according to comments of US Secretary of State John Kerry) played the key role. Let us recall that although Syria itself used to be minor oil producer even in the past (the country produced around 0.4 million barrels per day of oil back in 2010), such an incident brings even less stability to the Middle East region.
Moreover, adding pressure to the North Sea market, exports of oil from Libya remain at a muted level due to ongoing strikes at the country’s main ports. Libya even warned on Monday that it would destroy any tanker attempting to illegally export oil from the country. Relatively stronger demand for light sweet grades has also been indicated by unusually wide spreads between sweet and sour North Sea grades (such as between Ekofisk and Forties) and overall tightness in the market is indicated by relatively wide spread between front and second month futures contracts on Brent
Gold failed to benefit from rising Middle East tensions and was hovering around 1395 USD per troy ounce (USD/toz) level throughout the most of the session yesterday. Although one might expect some pressure on the gold price stemming from the situation in Syria (and related fall in US treasuries yields), the key event ahead from the perspective of gold remains US nonfarm payrolls report (next week) and following FOMC meeting in September which is eagerly expected due to QEtapering talks.
In our view, economic uncertainty will result in a small initial tapering by $10B, probably evenly split between US Treasuries and MBS, which may slightly disappoint some players and thus be supportive for the price of gold (in the short-term).