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Oil Reaches Two-Year High on Syria as Energy Leads Stock Gains

August 28, 2013

Aug. 28 (Bloomberg) -- Oil reached a two-year high and energy shares led gains in U.S. stocks, while emerging-market currencies weakened, amid growing speculation there will be an American-led military strike against Syria. European shares declined while Treasuries snapped a four-day advance.

West Texas Intermediate oil climbed 1 percent to $110.11 a barrel as of 10:42 a.m. in New York after rising as much as 3 percent to $112.24. The Standard & Poor’s 500 Index 0.3 percent after the gauge sank 1.6 percent yesterday. The Turkish lira and Indian rupee slumped to records. The dollar strengthened against 11 of its 16 major peers while the pound rebounded from three- week low against the euro. The U.S. 10-year note yield increased six basis points to 2.77 percent.

The U.S. and its allies are moving closer to a military strike against Syria in response to an alleged chemical weapons attack near Damascus last week. President Barack Obama plans to release an intelligence assessment this week and U.K. Prime Minister David Cameron said Britain will put forward a draft resolution at the United Nations today authorizing action to protect civilians. Global funds have withdrawn about $44 billion from emerging-market stock and bond funds since the end of May through last week, according to EPFR Global, a Cambridge, Massachusetts-based data provider.

"Syria’s taking attention away from what’s been generally better news out of the U.S. in terms of stronger growth," Sean Fenton, a Sydney-based fund manager who helps oversee about $1 billion at Tribeca Investment Partners, said in a Bloomberg Television interview. "It’s probably even more concerning what’s happening within Asia in terms of capital flight."

 

Broader Conflict

 

Stocks declined and crude rallied yesterday amid speculation that any strike against Syria may spread to other parts of the Middle East and threaten exports from a region that produces 35 percent of the world’s oil. Saudi Arabia, the largest supplier in the Organization of Petroleum Exporting Countries, has backed rebels opposed to Syrian President Bashar al-Assad. Assad’s allies include Iran, the group’s sixth-biggest producer.

"The fear here is that a strike on Syria will lead to a broader regional conflict vis-à-vis al-Assad’s puppet-master," Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania, said in a report today.

The S&P 500 dropped the most in two months yesterday, extending its two-day decline to 2 percent and closing at the lowest level since July 3. Among stocks moving today, energy shares led gains among the 10 main S&P 500 industry groups, with Exxon Mobil Corp. and Chevron Corp. increasing at least 1.8 percent. TiVo Inc. climbed 5 percent after the maker of digital- video recorders posted a profit. Joy Global Inc. lost 5.7 percent as the mining equipment maker said orders for new equipment are declining.

 

Home Sales

 

Fewer Americans signed contracts in July to buy previously owned homes, a sign that rising mortgage rates are starting to slow momentum in the housing market. The index of pending home sales dropped 1.3 percent, the most this year, after a 0.4 percent decrease in June, figures from the National Association of Realtors showed today. Economists forecast no change in the gauge from the month before, according to a median estimate in a Bloomberg survey.

Oil and American equities are moving in opposite directions by the most in almost two years amid prospects of military intervention in Syria.

While the S&P 500 slid 1.6 percent yesterday, West Texas Intermediate surged 2.9 percent to $109.01 a barrel on the New York Mercantile Exchange. The 4.5 percentage-point divergence was the widest since November 2011, data compiled by Bloomberg show. Crude extended gains today, surging to a two-year high.

 

Correlation Breakdown

 

The commodity’s advance amid the biggest retreat in U.S. shares since June shows attention is shifting to armed conflict and away from the world economy. Oil and the S&P 500 have been positively correlated since April 2011 as the global financial crisis receded. The link is breaking down on concern a U.S. attack may escalate and disrupt supplies from the region that holds almost half of all proven oil reserves.

Three shares fell for every one that gained in the Stoxx 600, as the gauge retreated for a third day. The volume of shares changing hands in Stoxx 600 companies was 24 percent greater than the 30-day average, according to data compiled by Bloomberg.

 

Airlines Slide

 

Air France-KLM Group and Deutsche Lufthansa AG, Europe’s largest airlines, lost more than 3 percent as oil climbed. Polymetal International Plc slid 5.5 percent as the Russian gold and silver miner part-owned by billionaire Alexander Nesis posted a first-half loss.

Dubai’s stock market, which has risen more than any benchmark in the 40 largest equity markets in 2013 even as violence in the region spread, slipped 1.3 percent today, extending yesterday’s 7 percent slump that was the most since November 2009. Israel’s benchmark TA-25 Index erased earlier losses after dipping to the lowest level since September 2012.

WTI crude touched the highest since May 2011, while Brent oil climbed 1.1 percent to $115.64 and reached $117.34. Brent may rise to as high as $150 a barrel if Middle East conflict disrupts supply, according to Societe Generale SA.

The S&P GSCI gauge of 24 commodities jumped 0.5 percent to the highest since Feb. 20. Gold climbed 0.3 percent to $1,419.68 an ounce and silver was little changed at $24.46 an ounce. Copper fell 0.7 percent to $7,262.50 a metric ton.

 

Lira, Baht

 

Turkey’s lira dropped as much as 1.8 percent to 2.0730 per dollar, before paring declines and trading 1.5 percent lower at 2.0672. The rupee slumped 3.9 percent to 68.8450 versus the dollar. The Thai baht and Mexican peso fell at least 0.4 percent.

The dollar strengthened 0.7 percent against the yen and 0.5 percent versus the euro. The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major peers, rose 0.3 percent. The pound climbed versus the euro as Bank of England Governor Mark Carney said guidance on interest rates will help the economy as growth prospects are "solid not stellar."

The U.S. five-year note yield climbed from the lowest level in more than a week before the nation sells $35 billion of the securities today, the second of three auctions of coupon-bearing debt this week. The rate increased five basis points to 1.57 percent.

 

--With assistance from Emma O’Brien in Wellington, Candice Zachariahs in Sydney, Jeanette Rodrigues in Mumbai and Claudia Carpenter, Paul Dobson, Andrew Rummer and Stephen Voss in London. Editor: Michael P. Regan

 

To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Stephen Kirkland in London at skirkland@bloomberg.net

 

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

 

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