News Column

Worry over Iraq as supplier

June 13, 2014

LONDON: Brent crude oil climbed towards $112 a barrel yesterday on worries that escalating violence in Iraq could disrupt oil supplies from the major Opec exporter.

The Brent futures contract - an international benchmark sensitive to geopolitical turmoil - rose $1.85 to $111.80 a barrel by 11am, paring earlier gains that saw it rise more than $2 to its highest since early March.

US oil gained $1.50 to $105.90 a barrel, also shedding earlier gains that saw it hit a year high above $106.

An initially muted market response to news that Sunni rebels had overrun Iraq's second-largest city and moved in on its largest refinery at Baiji has given way to growing alarm as the al-Qaeda splinter group appeared to make rapid advances toward the Shia-led government in Baghdad.

"I would entirely ascribe this move to the insurrection in the north of Iraq… The fear is that it will cause a threat to Iraqi oil exports," Christopher Bellew, a trader at Jefferies Bache, said. "If this conflict knocked out Iraq as an exporter, that would have significant impact on prices… How high could they go? It depends on what happens."

Concern that the Baghdad-controlled Iraqi army was disintegrating and could no longer secure key oil facilities was exacerbated when soldiers fled the northern oil city of Kirkuk, leaving it in the hands of Kurdish forces.

However, the bulk of Iraq's oil production and export facilities are in largely Shia areas in the south of the country, where al Qaeda-inspired groups enjoy little sympathy.

Those facilities, which ship about 2.6 million barrels per day, were "very, very safe", the country's Oil Minister Abdul Kareem Luaibi said on Wednesday. His comments came after Sunni insurgents overran Tikrit, threatening the Baiji refinery, which can process 300 000 bpd and supplies Baghdad.

"There are no immediate oil export implications in as much as the latest news is about Kirkuk … and that has a limited impact because the northern pipeline has been down for months already," said Gareth Lewis-Davies, a strategist at BNP Paribas.

Despite yesterday's volatility, Opec, which supplies a third of the world's oil, said oil markets would be balanced in the second half of the year. - Reuters

Cape Argus

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Source: Cape Argus (South Africa)

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