News Column

Iraq Crisis Fueling a Spike in World Oil Prices

June 23, 2014

Jim Offner, Waterloo-Cedar Falls Courier

Oil pump (file photo)
Oil pump (file photo)

June 22--As Iraq wobbles into civil war, its oil industry could be among the casualties.

Oil industry experts already are noting the increase in world oil prices, fueled by a chaotic situation in Iraq that already was delivering some damaging blows to an Iraqi oil industry that exports about 3.2 million barrels per day, or about half its total production.

Iraq's oil production is second to Saudi Arabia's 10 million-barrel output among the OPEC members and together, the two account for roughly half of the cartel's total, according to Phil Flynn energy analyst with Price Futures Group in Chicago.

On Wednesday, some oil companies were pulling foreign staff out of Iraq, fearing Sunni militants from the north could strike at major oil fields in the Shi'ite south.

Iraq has the world's fifth-largest crude oil reserves, with about 143 billion barrels, according to the U.S. Energy Information Administration.

Even though production continued, the price of oil was soaring close to $107 per barrel at midweek.

What that means ultimately to motorists is anybody's guess, industry analysts say. But, in the short run, it means the price of gasoline will be going up -- maybe to record levels.

"When (oil) is trading in the $106-107 range, that's a sign of trouble, at least for U.S. consumers," said Gregg Laskowski, senior petroleum analyst with GasBuddy.com.

Oil prices peaked at more than $140 in the summer of 2008, and Iowa consumers paid an unprecedented $4 per gallon for regular-unleaded.

The average retail price rose steadily last week to more than $3.60 per gallon across the Waterloo-Cedar Falls metro area, according to Triple-A. A month earlier, the average was below $3.50.

On the positive side, prices still were lower than a year ago, when they averaged $3.643.

The national average at the end of last week was about $3.70.

Where it goes from here could depend on what happens in Iraq, Laskowski said.

So far, he said, oil production in Iraq hadn't changed much, in spite of the violence sweeping across the country.

If production is interrupted, that could send prices shooting upward, Laskowski said.

"The concern is depending on which of these groups who wins this civil war, that's what creates the nervousness and uncertainty about how production will be hindered," he said. "Regardless of whoever takes over, you could have damages to the infrastructure that occurs either accidentally or intentionally. They have four pipelines that are critical to their infrastructure and eight refineries. There are tremendous assets that are in a very volatile situation and that's why the markets are as nervous as they are."

If the al-Qaeda-inspired Islamic State of Iraq and Syria (ISIS) or any other terrorist groups move into the heart of southern Iraq's production area, it likely will "blow the top off this market," perhaps pushing the world oil price to $150 and higher, Flynn said.

"There's significant risks here -- probably one of the bigger risks the market has seen in some time," Flynn said. "The market was looking for Iraq to be one of the biggest producers in the world, and this production was going to exceed everyone's expectations to rival Saudi Arabia and the U.S. and we almost had that penciled in for the future. We can't now, and that changes the dynamic of the market. I don't think anybody knows what Iraq is going to look like when this is over."

Flynn said, were it not for a recent ramp-up in U.S. production, motorists could be looking at a much worse scenario apropos the cost of fuel.

U.S. petroleum output is just over 8 million barrels a day, up from 7.4 million a year ago, Flynn said.

He noted that domestic production is at its highest level since 1979.

"Thank goodness the U.S. is producing as much as it is or we'd be already talking about $150 to $200 oil now," he said.

___

(c)2014 Waterloo-Cedar Falls Courier (Waterloo, Iowa)

Visit Waterloo-Cedar Falls Courier (Waterloo, Iowa) at www.wcfcourier.com

Distributed by MCT Information Services

Original headline: Motorists heading for possible record fuel price spike


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Source: (c)2014 Waterloo-Cedar Falls Courier (Waterloo, Iowa)


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