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Oil prices hit highs for the year on Iraq violence

LiveMint logoLiveMint 12-06-2014 Lorenzo Ligato

New York: Oil prices jumped to the highest level this year on Thursday on growing concerns that escalating violence in Iraq could disrupt oil supplies from the second-largest OPEC producer.

Sunni Islamist rebels, who took over Iraq’s second-biggest city Mosul earlier this week, on Thursday surrounded the country’s largest refinery in the northern town of Baiji and extended their advance south toward Baghdad.

“The fear is that 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.”

The international benchmark Brent futures rose $2.63 to $112.58 a barrel by 2:07 pm EDT (1807 GMT), the highest level since the end of December.

US oil gained $1.82 to $106.22 a barrel, after earlier reaching $106.53, the highest since 19 September. Gains in the US-benchmark crude were capped by high domestic production and lower reliance on imports from Iraq, analysts said.

After an initially muted response, the oil markets gave way to growing alarm, as the Sunni rebels appeared to make rapid advances toward the Shi’ite-led government in Baghdad, threatening the country’s future as a unified state.

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.

Sunni insurgents overran Tikrit, threatening the 300,000-barrel per day Baiji refinery that supplies Baghdad. The refinery remained under government control on Thursday, the country’s oil minister Abdul Kareem Luaibi said, but a witness who lives nearby later said militants had arrived in more than 50 vehicles to surround it.

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 bpd, were “very, very safe”, Luaibi said on Wednesday.

“There are no immediate oil export implications in as much as the latest news is about Kirkuk ... and that has a limited impact,” said Gareth Lewis-Davies, a strategist at BNP Paribas. “The big fear is if they get south of Baghdad. But there is no immediate indication that this will happen.”

In 2013, the United States imported 341,000 bpd from Iraq, which represents less than 4% of the country’s total crude oil imports, according to US government data.

“In a post-shale US crude oil universe, it becomes a little more difficult for the oil market to really price in what’s happening in Iraq,” said Richard Hastings, macro strategist at Global Hunter Securities in Charlotte, North Carolina.

Investors were 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. Reuters

Additional reporting by Lin Noueihed in London and Keith Wallis in Singapore.

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