Syrian weapons concerns ahead of OPEC meeting – Brent crude could move outside US$105-115/pb range over next few days

<p>An unconfirmed media report advising that US officials acknowledge the mobilisation of chemical weapons in Syria is an uncomfortable thought. The civil war in Syria […]</p>

An unconfirmed media report advising that US officials acknowledge the mobilisation of chemical weapons in Syria is an uncomfortable thought. The civil war in Syria has so far been contained, with the exception of some border clashes with Turkey (a NATO member) and isolated incidents in Lebanon.

We could see Brent crude trading higher if Syria and the west move into a dangerous negotiation period – Syria knowing full well the repercussions of actually deploying the weapons but the west equally uneasy about the prospect that the regime is desperate and may miscalculate. We have written in the past that most of the countries within the Levant are not key suppliers of oil. When Israel initiated strikes on Gaza, we said the unrest was unlikely to cause oil prices to rise and that view held true (see report here)

However, the reason we think on this occasion things could be different is because an OPEC meeting is due to take place on December 12th. Saudi Arabia and other key gulf producers have been well linked to the rebellion against the Syrian government. The mobilisation of chemical weapons by Syria could be used as a bargaining tool by Iran. It is serious enough to see NATO moving quickly to send Patriot missile batteries to Turkey over the past few hours.

The recent high level defection of former Foreign Ministry spokesman Jihad Makdisi is being interpreted by some as a means of negotiating President Al Assad’s exit from Syria. Mobilisation of chemical weapons as a threat and deterrent might be part of that negotiation phase for Assad’s safe passage out of the country.

Either way, geopolitical tension in the Levant could spill into dangerous rhetoric among the Gulf countries and Iran which oil traders will no doubt see as a catalyst for possible supply disruptions. It is a long bow to stretch, but it is one worth keeping an eye on. Meanwhile, the USS Eisenhower has been transiting around the coast of Syria. Brent remains in our US$105-115 range since September but based on the above situation, the next few days could be the strongest chance of it moving higher above the upper limit

Copper ticks higher while Aussie job numbers finish year strongly

The employment numbers out today in Australia complete this week’s data trifecta – Reserve Bank meeting on Tuesday, GDP numbers yesterday and a read on the country’s job market today. The latter surprised on the upside with the official rate of unemployment printing at 5.2% compared to consensus estimates of 5.5% and last month’s print of 5.4%. Australia’s job market remains the envy of the world, inflation is well contained at 2% and commodity prices are starting to turn higher – all compounding the appeal of the Australian dollar which was last trading at US10.475 cents.

Copper continues to surprise us, last trading at US$3.66/lb which is slightly above a US$3.60-65/lb trading range which has held well for the year. Trading suggests the copper price – one we like to refer to as Dr Copper – pointing to a rally towards US$3.80/lb before year’s end. It is not only an issue of demand, but recent supply issues are starting to feed into the market. Copper stocks as measured by the London Metals Exchange are still near the bottom quartile over the past few years and well below 2010 highs. A move for copper towards US$/lb will also see other metals – like nickel, lead, zinc (and to a small extent tin) – move in an upward trajectory.

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