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Fears About Iraq Push Oil Prices to Highest Levels This Year Fears About Iraq Push Up Oil Prices
(35 minutes later)
LONDON — Oil prices rose on Friday to their highest levels this year, on growing concern about the fighting in Iraq.LONDON — Oil prices rose on Friday to their highest levels this year, on growing concern about the fighting in Iraq.
Brent crude, the international benchmark, was up about 1.2 percent to $114.20 per barrel in morning trading on Friday before falling back to $113.35. West Texas Intermediate, the standard in the United States, was up 0.5 percent, at $107.11 per barrel. Brent crude, the international benchmark, was up about 1.2 percent to $114.20 a barrel in morning trading on Friday before falling back to $113.35. West Texas Intermediate, the standard in the United States, was up 0.5 percent, at $107.11 per barrel.
Analysts say that a sharp price spike looks unlikely at this point, but that the fighting in Iraq and turmoil in other major oil producers may keep prices relatively high. Analysts say that a sharp price spike looks unlikely at this point, but that the fighting in Iraq and turmoil with other major oil producers may keep prices relatively high.
So far, the fighting has not been near Iraq’s main oil fields and export facilities clustered around the city of Basra in the south. Cities including Mosul and Tikrit, where the fighters of the Islamic State of Iraq and Syria have taken control, are in the north. But because Iraq has been the largest source of growth in OPEC oil production in recent years, traders worry about the potential for the fighting to spread — which is why oil prices are rising.So far, the fighting has not been near Iraq’s main oil fields and export facilities clustered around the city of Basra in the south. Cities including Mosul and Tikrit, where the fighters of the Islamic State of Iraq and Syria have taken control, are in the north. But because Iraq has been the largest source of growth in OPEC oil production in recent years, traders worry about the potential for the fighting to spread — which is why oil prices are rising.
“I think the upward movement is justified even though the direct threat to Iraqi supply is low,” said Richard Mallinson, an analyst at Energy Aspects, a London research firm.“I think the upward movement is justified even though the direct threat to Iraqi supply is low,” said Richard Mallinson, an analyst at Energy Aspects, a London research firm.
Of perhaps of greater concern is that the growing instability in Iraq and unrest in other big petroleum producing countries threatens to alter the geopolitical dynamics that have kept energy prices relatively stable in recent years. The Russian annexation in Crimea and the chaos in Libya “point to a systemic and seismic shift geopolitically,” Edward L. Morse, head of commodities research at Citigroup, wrote in a note to clients on Friday. Of perhaps greater concern is that the growing instability in Iraq and the unrest in other big petroleum producing countries threaten to alter the geopolitical dynamics that have kept energy prices relatively stable in recent years. The Russian annexation in Crimea and the chaos in Libya “point to a systemic and seismic shift geopolitically,” Edward L. Morse, head of commodities research at Citigroup, wrote in a note to clients on Friday.
Until recently, market participants have been expecting the supply from Iraq, which is now producing about 3.3 million barrels per day, would continue to grow, as a result of Western oil companies’ investments in the country’s rich but battered oil fields. In a benign world, Iraq could eventually produce about 6 million barrels per day, analysts estimate. If Iraq did attain that level it would be about 60 percent of the roughly 10 million barrels per day that the leading oil-producing countries, Russia and Saudi Arabia, produce. Until recently, market participants have been expecting that the supply from Iraq, which is now producing about 3.3 million barrels a day, would continue to grow, as a result of Western oil companies’ investments in the country’s rich but battered oil fields. In a benign world, Iraq could eventually produce about 6 million barrels a day, analysts estimate. If Iraq did attain that level, it would be about 60 percent of the roughly 10 million barrels a day that the leading oil-producing countries, Russia and Saudi Arabia, each produce.
But “the longer the insurgency lasts the more difficult it will be for Iraq to reach its potential,” Mr. Morse wrote. The change in outlook on Iraq “has radical implications for oil markets at a time of growing lost production worldwide due to intensifying disorder in a growing number of petroleum-producing countries,” he added. “The longer the insurgency lasts, the more difficult it will be for Iraq to reach its potential,” Mr. Morse wrote. The change in outlook on Iraq “has radical implications for oil markets at a time of growing lost production worldwide due to intensifying disorder in a growing number of petroleum-producing countries,” he added.
Chaos in Libya has reduced oil production there to around 10 percent of the 1.3 million barrels per day the country produced in 2012. Iran’s output has been trimmed by international sanctions. Syria’s civil war has severely diminished the country’s oil production. And the industries of two other key exporters, Nigeria and Venezuela, are facing their own difficulties. Chaos in Libya has reduced oil production there to around 10 percent of the 1.3 million barrels a day the country produced in 2012. Iran’s output has been trimmed by international sanctions. Syria’s civil war has severely diminished the country’s oil production. And the industries of two other key exporters, Nigeria and Venezuela, are facing their own difficulties.
Market jitters may increase during the summer, when travel season increases demand for gasoline and jet fuel. The big Gulf Arab producers, Saudi Arabia, Kuwait and the United Arab Emirates, are expected to increase oil production to cope with increased demand, but analysts say their buffer of unused, or spare, capacity is likely to be trimmed to about 2 million barrels per day. Reducing that buffer means it could be difficult to compensate for any further outages in oil-producing countries. Market jitters may increase during the summer, when travel season increases demand for gasoline and jet fuel. The big Gulf Arab producers — Saudi Arabia, Kuwait and the United Arab Emirate — are expected to increase oil production to cope with increased demand, but analysts say their buffer of unused, or spare, capacity is likely to be trimmed to about 2 million barrels a day. Reducing that buffer means it could be difficult to compensate for any further problems in oil-producing countries.
In the near term, concerns about Iraq are likely to remain paramount. Even if the Islamic fighters pause and try to consolidate their gains, the fighting has implications for Iraqi production.In the near term, concerns about Iraq are likely to remain paramount. Even if the Islamic fighters pause and try to consolidate their gains, the fighting has implications for Iraqi production.
For instance, one of Iraq’s major export pipelines runs from Kirkuk in Iraq to Turkey’s Mediterranean port of Ceyhan. This pipeline has been frequently closed by sabotage and other problems for years and has recently been shut for several months. Because it runs through the conflict zone, its reopening now looks delayed for the plannable future.For instance, one of Iraq’s major export pipelines runs from Kirkuk in Iraq to Turkey’s Mediterranean port of Ceyhan. This pipeline has been frequently closed by sabotage and other problems for years and has recently been shut for several months. Because it runs through the conflict zone, its reopening now looks delayed for the plannable future.
The British oil company BP had been discussing investing in the giant Kirkuk field, where production has been about 200,000 barrels per day but could be substantially higher given the field’s estimated 1.8 billion barrels of reserves. BP’s plans now seem unlikely to go ahead anytime soon. The British oil company BP had been discussing investing in the giant Kirkuk field, where production has been about 200,000 barrels a day but could be substantially higher given the field’s estimated 1.8 billion barrels of reserves. BP’s plans now seem unlikely to go ahead anytime soon.
Paradoxically, the unrest may help increase exports from the oil-rich northern Iraqi region of Kurdistan. The Kurdish government has recently opened a pipeline directly linking oil fields in the enclave to Turkey, raising the possibility of substantial exports in the range of 400,000 barrels a day of Kurdish oil though Turkey.
Oil sales from Kurdistan have been hampered by the central government in Baghdad’s insistence that Kurdish oil falls under its purview and must be sold through Baghdad’s oil marketing arm, SOMO. Companies like Genel Energy, which is run by the former BP chief executive Tony Hayward, have been limited to trucking their oil out or selling it to local refineries.Oil sales from Kurdistan have been hampered by the central government in Baghdad’s insistence that Kurdish oil falls under its purview and must be sold through Baghdad’s oil marketing arm, SOMO. Companies like Genel Energy, which is run by the former BP chief executive Tony Hayward, have been limited to trucking their oil out or selling it to local refineries.
But the fighting may increase the bargaining power of the Kurdistan Regional Government, analysts say. Citigroup predicts that now that the Iraqi government of Prime Minister Nuri Kamal al-Maliki is in trouble and in need of the share of revenues it could gain from Kurdish oil, Baghdad may prove more flexible. But the fighting may increase the bargaining power of the Kurdistan Regional Government, analysts say. Citigroup predicts that now that the Iraqi government of Prime Minister Nuri Kamal al-Maliki is in trouble and in need of the share of revenue it could gain from Kurdish oil, Baghdad may prove more flexible.