Oil may hit $109/barrel - JPMorgan

Oil prices have hit their highest since late 2014 and JPMorgan says Brent crude could go to US$80

(NZ$109) a barrel as US-led strikes on Syria raise the spectre of renewed US sanctions on Iran.

Geopolitical tensions in the region had already pushed prices higher. Last week Saudi Arabia intercepted three missiles over Riyadh, reportedly fired by Iranian-backed Houthis in Yemen and targeting national oil company Saudi Aramco’s assets.

In response, the international benchmark Brent crude oil price lifted 8.6 per cent last week to hit

US$72.58 a barrel on Friday night, the highest since November 2014.

Capital Economics commodities economists warned clients: ‘‘The suspected chemical weapons attack in Syria has heightened the chance that the US will impose further sanctions on Russia and reimpose them on Iran.’’

JPMorgan oil strategist Abhishek Deshpande said the market had already priced in the risk of reinstated Iranian sanctions, and so would add only

US$2 to US$5 to oil prices.

The greater risk, he said, was that Europe also reimposed sanctions, a scenario that would push crude ‘‘at least towards

US$80, if not more’’.

But a 10 per cent climb in crude this year and a 25 per cent rise year-on-year did not qualify as an oil shock ‘‘by any standard’’, JPMorgan head of cross-asset strategy John Normand said.

Another leg higher to US$80 or higher in crude prices would, however, ‘‘prevent risky markets from making the gains they deserve to make in the second quarter,’’ Normand said.

Capital Economics still expects the market to be in surplus despite the risks to supply from possible sanctions and damage to oil infrastructure.

The recent surge in prices would encourage further prospecting, especially in the US.

-Sydney Morning Herald