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Trend:

Rotterdam: $ 3 lower
Singapore: $ 2 lower
US Gulf: $ 2 higher

Something’s brewing in Syria (Brent: $104.3)

Even though it does not seem like a full scale war including foreign nations is just around the corner, Syria is definitely a hot geopolitical potato. Israeli jets have destroyed targets in Damascus - supposedly missiles on their way to Hezbollah in Lebanon. U.S. President Obama has warned that the use of chemical weapons by Syria's president Assad against the population, would be the crossing of a red line, and potentially mean U.S. military involvement in the Middle Eastern country. A contrary signal is out today as U.S. Secretary of State, Kerry, has agreed with his Russian counterparty to hold an international conference on Syria "as soon as possible". To throw in an extra twist, Russia’s only naval base outside the former Soviet Union is located in Syria. Any military escalation in the region would directly impact oil prices to the upside.

China's crude import in April rose by 3.7% compared to last year, and 3.5% compared to March. It has been costume with China that demand for oil picks up throughout the year. We expect this pattern to repeat itself again in 2013. Conservatively estimated, Chinese demand should increase by 400,000 bpd.

Later today (16.30 CET) the official U.S. oil inventories will be due. Last week surprised by a massive build in crude stocks. We expect volatility to pick up slightly around the numbers, but Brent should trade within a +/- $1 range.

Recommendation

Due to increased geopolitical concerns, we expect oil prices to stay above $100. Furthermore, given the multiple factors; Break-even price of OPEC and shale oil extractions - the big divergence between equities and oil, we recommend consumers to secure hedges should it suit your budget.