News Column

Crude prices rise on insurgency in Iraq

June 13, 2014


London: Brent crude oil pared gains but remained above $113 a barrel yesterday despite easing concerns that an insurgency in Iraq would trigger a sudden and significant halt in its oil exports.

"The market in general is trying to assess the risks on Iraq. There was a big market reaction and then the IEA (International Energy Agency) said it did not see a risk to supplies so the volatility is reflecting this," Olivier Jakob at Petromatrix consultancy said.

Most of Iraq's current oil exports come from south of Baghdad, still far from the rebel fighters. Should they reach south of Baghdad, analysts expect them to encounter much greater resistance.

Iraqi exports from the north are considered safe for the moment, analysts said, as the major Kirkuk oil hub is held by Kurdish forces.

"While the Iraqi military faces low morale issues in the north, Shia fighters would prove much more resilient in protecting their homes and provinces in southern Iraq, and insurgents have no local support," Ayham Kamel, director of the Middle East and North Africa at Eurasia Group, wrote in a research note earlier this week.

Brent was up 55 cents at $113.57 per barrel as of 1142GMT, off a peak of $114.69, its highest since September. It gained more than $3 on Thursday.  US crude was up 48 cents at $107.01, off a high of $107.68, also a nine-month high. A day earlier it gained $2.13.

Brent was set to gain more than five per cent this week, the biggest weekly rise since last July, while US crude was on track for its biggest jump since December.

The United States has threatened military action against Islamist militants who have taken towns and cities in Iraq, raising concerns over its oil exports. The IEA played down fears over the possible sudden loss of oil exports from Iraq in its monthly Oil Market Report.

"Concerning as the latest events in Iraq may be, they might not for now, if the conflict does not spread further, put additional Iraqi oil supplies immediately at risk," the Paris-based agency said.

Analysts say oil markets are finely balanced at the moment and another significant blow to supply could push up prices even further.

The IEA said yesterday that Opec would need to produce one million barrels per day (bpd) more oil on average in the second half of 2014 to balance the global market, which will see a steep seasonal spike in demand.

The bullish assessment contrasted with the view of Opec, which on Thursday said extra production would be more than sufficient to meet growing demand.

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Source: Times of Oman

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