Syria's Quiet But Busy Oil Trade & Its Potential for Trouble

Syria is best known around the world for being a "rogue" state, and one, according to the U.S., where terrorists are part of the social fabric.

But, what is not usually featured in newscasts is the fact that Syria has a moderately successful oil industry. And that at this time, as the world pays attention to other issues, the Syrians are making some interesting moves.

According to "China and Syria opened their first joint oil venture, Sino-Syrian Kawkab Oil Company (SSKOC), to develop an old oil field in the northeast of Syria, nearly 600 km away from Damascus, Xinhua News Agency reported. China National Oil and Gas Exploration and Development Corporation (CNODC) won the rebuilding project of the Gbeibe oil field in 2001 after competitive bidding with the companies from the US, Canada and Russia. The CNODC and the Syrian Oil Company held 50-50 percent of the share of the joint company respectively. Syria has a relatively abundant oil reserve and its oil production reaches 500,000 barrels per day. Two-fifth of the production goes to local market while the other serves international demand."

Simultaneously, according to Middle East News line, "Iraq and Syria have signed an oil cooperation accord. The two countries signed a memorandum of understanding that would include a range of cooperation on oil issues. Officials said the cooperation would comprise oil exploration as well as trade. The MoU was signed during the visit by Iraqi Prime Minister Iyad Alawi to Damascus on July 24. Syrian officials said Damascus would supply kerosene, benzene and liquefied natural gas to Baghdad in exchange for Iraqi crude oil. Iraq has been seeking to revive energy relationships with countries that traded with Baghdad under the Saddam Hussein regime. They include Russia, and officials said Baghdad has reached agreement to review energy contracts between the two countries during the Saddam regime."

The two deals are significant. First, they show that Syria is open for business. But most important, these items show that Syria is open for business with China, and that suggests that oil is likely only the beginning to other types of business.

To be sure, China needs oil, and as we've noted before, it is willing to go anywhere, and do just about anything to get it. This is exemplified by the fact that they are willing to go to Syria and redevelop an old oil field.

But China is also willing to trade other things, among them technology, and weapons. Syria is not feeling safe these days, as Damascus is always fearing that the U.S. could invade its borders at any time. Syria is also always weary of Israel, with whom there is always some kind of skirmish or intrigue ongoing.


The situation in the Palestinian territories, the increasing pressure on Arafat, and the entrance of China into the Syrian oil markets, on the surface may not be connected. But, in our opinion, the entrance of China into the region, at a time of increasing pressure, may create certain opportunities for the Chinese to at the very least gather information, and look for other opportunities.

At the very least, we would not be surprised to see Chinese "advisors" and "consultants," as well as perhaps even small contingents of soldiers provide protection to China's oil field infrastructure. The Chinese already have large groups of soldiers in Africa, "protecting" their oil installations.

In our opinion, China's entrance into Syria is just another complication for the U.S. at a time in which it doesn't need any more such complications.

When we combine the health care crisis in the U.K. with the deterioration of the Middle East, now centering around the Palestinian territories, and add the presence of China in the mix, a much larger picture of potential trouble at some time in the future takes shape.

Frankly, we don't believe that anyone in the Bush administration, or even a possible Kerry team might be looking that far ahead.

Oil Roundup

Oil Supply Data Could Move Market

Crude oil futures were trading above $42 in pre U.S. trading on 7-28 as oil stocks rebounded.

Crude oil is within striking distance of a new all time high, and the oil supply data from the API and the U.S. government, due out in mid morning on 7-28 could be the catalyst that gets it there. Already, a large truck bomb explosion in Baghdad overnight, was moving oil prices higher.

The market is expecting tight supplies once again. According to CBS Marketwatch, quoting Alaron Trading's highly visible Phil Flynn: "OPEC may be producing at its limit, with no ability to significantly increase production, refinery problems continue to rattle the market, and ["we're looking for a bullish surprise when the weekly supply reports come out"] Wednesday, he said."

Opinions, of course were varied as to what's coming in the data: "IFR Energy Services is looking for a decline in crude inventories between 1 million and 3 million barrels for the week and Alaron expects a 2-million-barrel fall. Fimat USA thinks crude stocks will be unchanged for the week. IFR bet that gasoline supplies likely fell 1 million to 2 million barrels. In contrast, Fimat expects a 250,000-barrel climb."

The Philadelphia Oil Service Index (OSX) remained below the 110 area. A break below 98 its 200 day moving average, could send it plummeting to the 88 area in a hurry. For more details on trading the energy sector visit our energy timing page, featuring our highly effective OIH timing model and our Top Ten Energy Stock List.

The Amex Oil Index (XOI) remained below 640 . The 610-627 area is now key support. This is still a crucial juncture for the entire oil sector, as a continued failure in the near term could lead to a major top forming. A close below 600 would be a very negative technical development. For immediate analysis, including stock picks, and the latest in technical analysis of the entire energy complex, our subscriber section has a full complement of recommendations in oil service and the rest of the energy complex.

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