Markets: Syrian shake-up

The fallout in Syria will hit Qantas and Virgin but gold miners like Newcrest and St Barbara will be eyeing a rally.

Syria is not a destination for Qantas or Virgin Australia, but in coming days it will be the predominant factor in driving their share prices. That is likely to be down.

US Secretary of State Chuck Hagel told the BBC the US stands ready to deploy armed forces in Syria after it blamed the Damascus government for the use of chemical weapons that have killed an untold number of civilians. UK Prime Minister David Cameron says the world could “not stand idly by” as the “appalling” loss of life continues. French President Francois Hollande says he is “ready to punish” whoever is behind the chemical weapons attack.

Syria and the subsequent comments by Hagel, Cameron and Hollande sent the price of West Texas Intermediate crude oil for October delivery to its highest level since February 24, 2012 at $US109.01. Jet fuel is refined from crude oil. Shares in the world’s biggest airline, United Continental Holdings, slumped 5.1 per cent on Wall Street overnight. The Bloomberg New York Harbor 54-grade jet fuel spot price rose 2.6 per cent in New York trading Tuesday. This jet fuel spot price has gained 18 per cent since its 2013 low on April 17.   

The US Energy Information Administration says one fifth of all oil traded worldwide is through the Straits of Hormuz, between Oman and Iran. Egypt’s Suez Canal ships as much as 7 per cent of the world’s oil. Any supply disruption at these two locations because of western military action in Syria that causes further conflict in a conflict prone region will send oil prices even higher.

This backdrop is very gloomy for Qantas and Virgin but not for gold producers. Spot gold has risen in the last week as evidence emerged of a chemical weapons attack in Syria, forcing some to flee to what is viewed at times as a traditional safe haven. Since August 22 spot gold has gained 3.7 per cent. At 0826 AEST spot gold was at $US1416.65, an 18 per cent gain since June 27.

That may help, in the short run at least, the stock prices of Newcrest, Alacer and St. Barbara, Australia’s biggest gold producers. Newcrest shares are up 11 per cent in the last three trading days. St Barbara’s stock surged 31 per cent on Friday and Monday before profit taking yesterday took the shares down 3.8 per cent. Look for a rebound today and for a broader gold sector rally as airline shares slide.

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