News Column

Iraq worries keep oil near $115 per barrel

June 20, 2014


London: Oil traded at close to nine-month highs Friday, on course for a second week of gains, as violence in Iraq raised worries over supplies. Stock markets remained upbeat.

Buoyed by the billions of dollars the US Federal Reserve is still pumping into the global economy under its quantitative easing programme, equity markets took heart from a sanguine message this week on inflation from Fed chief Janet Yellen.

That effect was still dominant yesterday. All of Europe's major exchanges inched up, although the MSCI index of world shares dipped 0.2 per cent from record highs it reached on Thursday.

Brent oil prices slipped 0.1 per cent to $114.90 from a high of $115.71 touched on Thursday.

"The events unfolding in Iraq will continue to dictate the direction on the market and support the oil price for the time being at a high level," said Barbara Lambrecht, an analyst at Commerzbank in Frankfurt.

Rising oil prices may mean improved profits for major oil companies but could impose rising costs and higher inflation on the global economy.

Speculation the Fed will look past any rise in inflation as long as growth is improving pushed stocks higher, and European markets up another 0.1-0.3 per cent Friday.

"The goldilocks scenario of low rates and a slowly improving economy continues, with markets unmoved by continued geopolitical concerns," said Michael Hewson, chief market analyst at CMC Markets in London.

"Against that backdrop stocks look likely to remain underpinned, though trading today is likely to be cautious as we head into the weekend, given what could unfold ... in Iraq."

Gold standard

If inflation does accelerate, then holding gold is a good way to hedge against declines in the value of currencies, and bullion has been another big beneficiary of events in Iraq. It saw its biggest one-day rise in nine months on Thursday before retreating a touch on Friday.

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Source: Times of Oman

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