Fears of fresh escalation in Syria's brutal war coupled with compliance with a pledge by the OPEC cartel and Russia to limit production are keeping oil prices at current high levels, the International Energy Agency said today.
However, a string of tit-for-tat tariff announcements by the world's top economies the United States and China has sparked worries that prices could suffer should their dispute descend into an all-out trade war.
"Political uncertainty in the Middle East has returned to the fore in recent days. As we write, uncertainty about the next steps in Syria and Yemen have helped propel the price of Brent crude oil back above USD 70" per barrel, the IEA said in its monthly report today.
Western powers were continuing to weigh their options in Syria, though US President Donald Trump appears to have backed away from imminent action after threatening strikes against President Bashar al-Assad's regime following an alleged chemical attack.
Nonetheless, "oil market participants remain circumspect even though the geopolitical situation in the Middle East has eased somewhat," Commerzbank Commodity Research said in a note.
The price of oil was also supported by a drop in production by the Organization of the Petroleum Exporting Countries (OPEC) and Russia, as they continued to comply with a 2016 deal that was reached in Vienna after prices crashed amid a global glut, the IEA said in the report.
In fact, some of the parties to the agreement cut their production even more than they had promised, helping prices to hover above USD 72.60 per barrel for the Brent benchmark and at around USD 67.65 for WTI today.
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"It is not for us to declare on behalf of the Vienna agreement countries that it is 'mission accomplished', but if our outlook is accurate, it certainly looks very much like it," the IEA said.
OPEC kingpin Saudi Arabia pushed its production below its target, meanwhile, as unrest in Libya also kept output below planned levels. Another country suffering production drops was crisis-hit Venezuela, which has been forced to increasingly rely on crude imports, chiefly from Russia, to meet its needs.
Output by non-OPEC member the United States, meanwhile, continued to accelerate, the IEA said.
The agency said that thanks to the OPEC cuts and high global oil demand the rise in American production was not significant enough to force prices down.
However, should the tariff announcements by Washington and Beijing give way to a trade war, global oil demand and the broader economy may suffer.
"The economic outlook remains supportive, but the trade dispute between the US and China is introducing a downward risk to the forecast," the IEA said, citing secondary sources.
The report came a day after OPEC also pointed to persistent crude strength.
"Oil prices climbed further to their highest level in several weeks as tension in the Middle East and the possibility of further drops in Venezuelan output helped offset the impact of growing US crude production," it said in its monthly report.