Global oil prices rise on escalating Iraq violence

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

Global oil prices rise on escalating Iraq violence

World Bulletin/News Desk

Brent crude oil climbed towards $112 a barrel on Thursday 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 $1.90 to $111.85 a barrel by 1320 GMT, paring earlier gains that saw it rise more than $2 to its highest since early March.

U.S. oil gained $1.66 to $106.06 a barrel, also shedding earlier gains that saw it hit a year high.

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 Shi'ite-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."

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 Shi'ite 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 (bpd), 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.

Iraq's biggest oil refinery at Baiji remained under government control on Thursday, Luaibi said, while the northern oil export pipeline from Kirkuk was already disrupted due to insurgent attacks before the latest escalation in violence.

"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.

"This is more about uncertainty as it calls into question the ability of the central Baghdad government to keep control ... The big fear is if they get south of Baghdad ... but there is no immediate indication that this will happen."

Despite Thursday'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 with extra production sufficient to meet growing demand.

"A $2 move is nothing in historical terms but we have seen very low oil price volatility in recent months and that makes this move more significant," Lewis-Davies said.

"But a lot would have to happen before we saw a serious disruption to exports so that is not an immediate risk."


Oil prices also drew support from last week's 2.6-million-bpd drop in crude inventories, Ric Spooner, chief market analyst at Sydney's CMC Markets, said. Analysts polled by Reuters had forecast a 1.9-million-barrel decline.

U.S. crude is expected to hold around $105 per barrel, Spooner forecast. The keenly traded spread of Brent over WTI was below $6 at 1115 GMT, with U.S. crude also facing upward pressure.

Investors were also watching for the release of key economic data from the United States later on Thursday and figures from China on Friday for industrial production and retail sales.

Güncelleme Tarihi: 12 Haziran 2014, 16:34