War and conflict have long been a powerful factor in the pricing of oil. The recent flurry of violence in the Middle East region is showing no signs of disproving the trend.
The price of oil has spiked to an 18-month high of US$109 per barrel in response to ongoing conflict in Egypt and Syria, both of which are significant oil producers.
With uncertainty over how the world’s forces will respond to Syria’s chemical weapon attack, there are fears that oil production and transport facilities may be disrupted, reducing supply. That is yet to happen, but fear alone is a powerful influence over markets and oil prices could continue to creep up in response.
This would benefit Australia’s big oil producers like Santos (ASX: STO), Beach Energy (ASX: BPT) and BHP Billiton (ASX: BHP). One producer who will be watching the events particularly closely will be Woodside Petroleum (ASX: WPL).
Woodside is currently in the process of hamming out a deal to explore the giant Leviathan gas field off the coast of Israel. The field is estimated to hold up to 18 trillion cubic feet (tcf) of natural gas, but lies in waters smack between Egypt and Syria.
The field has been described by Woodside as a significant value-creating opportunity and the deal to participate in the joint venture has taken some time to finalise.
As to the impact of the current conflict, Woodside has said that its development concept enables LNG to be exported directly from the field, which suggests a preference to use floating LNG (FLNG) rather than an option where gas is piped to an onshore processing plant.
Woodside has already proven it is not willing to take unnecessary investment risk, walking away from a proposed onshore LNG development at James Price Point in Western Australia because of high costs. Much like the rest of us, the company will be hoping for a quick and peaceful resolution to the current conflict to allow the real work to begin.
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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.
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