Oil market reacts neverously causing hike in oil prices

Although the supply of Iraqi oil remains, although so far no major damage to infrastructure and the fact that the offer could relatively easily compensated by other OPEC producers, markets have reacted much nervous to the escalation of tension in Iraq. In just two sessions a barrel of Brent crude, the benchmark for Europe, has risen 4 % to reach the highest since September to $ 113.32 per barrel.

Investors fear that militants of the Islamic State of Iraq and the Levant (ISIL) seek to take control of the country’s energy infrastructure. A barrel of West Texas Intermediate (WTI), the benchmark for U.S., rose 1.1 % in the session up to $ 106.53, fearing that affect climbing even the transport of oil by sea. For now, their militias have repeatedly bombed the pipeline linking Kirkuk and Ceyhan, pumping 600,000 barrels a day, and suffered partial damage, but failed to destabilize.

“The immediate risks of fighting in the north are limited, since the Iraqi oil industry is concentrated in the south and in the Kurdish autonomous region “, recognized Julian Jessop, chief economist at Capital Economics, in a note to customers. Iraq in May was producing 3.3 million barrels per day, according to Bloomberg, and forecasts of the International Energy Agency (IEA), made public Friday, estimated that production will increase by 1.2 million barrels higher by end 2019.

The truth is that the growing insecurity in the country require the Government of Nuri al-Maliki to devote more resources to combat security threats rather than to improve the oil infrastructure, which can derail much of the increased Iraqi oil production in the medium term. “Although the production potential of Iraq is enormous, not least the political challenges facing and nothing creates a more clear example of those risks that the current season of the militias,” noted the IEA Friday.

Analysts at Barclays market tensions explained also by the fact that Libyan production is not expected to resume soon and that the return to the market of Iranian barrels “expected to be slow.” In these circumstances, it is quite normal for any threat of supply disruption the market overreact. “Iraq put back on the table the delicate balance and high political instability in the economies of the Middle East,” says José Ramón Díaz Guijarro, Professor of Economic Environment and Country Analysis of IE.

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Posted by Maleeha Tareen on Jun 15 2014. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.