Oil rises above $113 on fighting in Iraq

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

Reuters/London

Brent crude edged further above $113 a barrel yesterday, up about $4 since the start of the week, on concerns that an insurgency in Iraq could trigger civil war and eventually hit 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 the capital, 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, fighters would prove much more resilient in protecting their homes and provinces in southern Iraq, and insurgents have no local support,” Ayham Kamel, director for the Middle East and North Africa at Eurasia Group, wrote in a research note earlier this week.

Brent was up 7¢ at $113.09 per barrel as of 1456 GMT, off a peak of $114.69, its highest since September. It gained more than $3 on Thursday.  US crude was up 12¢ at $106.65, off a high of $107.68, also a nine-month peak. A day earlier it gained $2.13.  Brent was set to gain more than 5% this week, the biggest weekly rise since last July, while US crude was on track for its biggest jump since December. “You want to have a premium as Iraq is more unstable than last week, but with no disruptions, how much can you keep,” Jakob at Petromatrix said.

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 1mn 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.

The cartel of 12 exporters said global oil inventories were comfortable. US stockpiles were high and commercial stocks in the large, developed economies were sufficient at the end of April to meet almost two months of consumption.

Overshadowed was US data that showed retail sales rose less than expected in May and first-time applications for jobless benefits increased last week.

US consumer sentiment was also bearish as it fell in June. Views by consumers with the lowest incomes soured, a survey released yesterday showed.

Gulf Keystone says Kurdistan oil project progressing despite violence

Oil producer Gulf Keystone Petroleum said plans to increase production from its Shaikan oil field in Iraqi Kurdistan were on track despite escalating violence in the region.

The London-listed oil firm said yesterday three wells at Shaikan PF-1 were producing steadily at a rate of 16,000 gross barrels of oil per day (boed), a level that was set to rise to 20,000 later this year.

The oil field is located north of Kirkuk, the oil city in Iraqi Kurdistan which was taken over by Iraqi Kurdish forces on Thursday.

Brent crude prices have jumped to a nine-month high over fears oil production in the region could be disrupted after the US threatened military action against Sunni Islamists in Iraq.

“Our operations in the Kurdistan Region of Iraq are progressing in line with our previous guidance, whilst we remain alert to the current security situation in Iraq, which has recently escalated outside the Kurdistan Region,” said Gulf Keystone chief executive officer Todd Kozel.

He added that the whole Shaikan complex reached a record daily flow rate of 25,000 boed on June 4.

The company has sold a total of 1.85mn gross barrels of Shaikan crude to the international market.

Iraq and Kurdistan have been trying to reach political agreement over oil sales from the autonomous region.

Two cargoes of crude from Iraqi Kurdistan have already been exported via Turkey.

Meanwhile, Gulf Keystone Petroleum gained the most in two weeks after saying production from its key asset was proceeding as planned.

The company advanced 1.9% to 81.5 pence at the close in London. That’s the biggest gain since May 30, valuing the company at 724mn pounds ($1.2bn).