Why oil prices are surging higher

So far this week it certainly has been a positive period for global oil prices.

According to Bloomberg, WTI crude oil rose 3.4% during the U.S. session to US$65.58 a barrel and Brent crude oil lifted 3.5% to US$71.05 a barrel.

This means that oil prices have risen over 5% over the last two days and has the Brent crude oil price at its highest level since 2014.

Why are oil prices lifting?

Oil prices have been on the rise after news broke confirming that President Trump has cancelled his scheduled trip to South America in order to focus on the U.S. response to developments in Syria.

According to CNBC, Trump has met with military officials in the White House this week to discuss whether any action would be required in response to an alleged chemical weapons attack carried out by Syrian President Bashar Assad’s government against its own people.

The fear is that any action taken by President Trump could interrupt crude supply chains and make it difficult for producers to ship overseas. With the global economy growing strongly, demand for oil has been rising and inventories could be eaten into meaningfully if supply levels drop.

Which would be positive news for Australian energy producers such as Beach Energy Ltd (ASX: BPT), Oil Search Limited (ASX: OSH), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL).

But it wouldn’t be positive news for all companies on the local share market.

Global airline shares tumbled sharply overnight in response to rising oil prices. This could mean that the shares of Air New Zealand Limited (ASX: AIZ), Qantas Airways Limited (ASX: QAN), and Virgin Australia Holdings Ltd (ASX: VAH) come under heavy selling pressure themselves during trade on Wednesday.

Considering the current outlook on oil prices, I would be favouring energy producers ahead of airlines at this point.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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