Brent crude fell below $114/bbl, its lowest levels in a week, amid speculation that Iraqi oil production won’t be disrupted by violence; at last check, Brent nearly flat at $114.24 while West Texas crude +0.1% at $106.32.
As the crisis in Iraq escalates, brent crude climbed above $115 today towards its 9-month record high. Brent rose 62 cents to $115.43 by 6:35 a.m. GMT, and may break its Thursday record of $115.71 - the highest price since September 9.
Concerns of Iraqi supply are causing brent to rocket. Militants yesterday took control of three towns, two crossings on the Iraq-Syrian border, and stopped traffic on the main highway from Jordan to Baghdad.
U.S. crude for August delivery also gained, soaring 50 cents to $107.33. The July contract expired on Friday.
Crude futures in Asia climbed higher today, after data was revealed showing a small decrease in U.S. weekly oil stockpiles. The supply fell by 579k barrels last week, according to the U.S. Energy Information Administration. Still, the country's domestic crude production is currently its highest in 28 years.
At 6:30 a.m. GMT, July crude futures on the New York Mercantile Exchange traded at $106.59 a barrel, up $0.62. August Brent crude on London's ICE Futures exchange climbed $0.46 to $114.72 a barrel.
Instability in Iraq continues, after a battle took place at Iraq’s largest oil refinery yesterday between militants and Iraqi security forces.
The Obama administration is also signaling that Iraqi Prime Minister Nouri al-Maliki should step down, stating he is unable to stabilize the region.
"The militants have managed to break in to the refinery. Now they are in control of the production units, administration building and four watch towers. This is 75% of the refinery," according to an official speaking from inside the Baiji refinery in northern Iraq.
A week of surging prices for oil and gold are reversing, as worries about instability in Iraq that have dominated the market in recent days recede a bit.
At last check, July WTI crude was down 0.4% to $106.44/bbl on the New York Merc, and the global Brent contract was down 0.2% to $112.69 after briefly topping $114/bbl last week, as the market has "run out of buying momentum" with no interruption in the flow of oil from Iraq or any sign that the fighting is spreading to the southern oil region.
August gold is down 0.6% to $1,267.90/oz.; with market participants apparently not rating the geopolitical risks quite as highly as before, gold is in less demand as a safe haven, and Commerzbank notes yesterday's outflows in gold ETFs tracked by Bloomberg totaled 3.8 tons, their highest daily outflow in nearly two weeks.
The consensus opinion amid Iraq's convulsion is positive on energy stocks and negative on U.S. retailers and other consumer stocks given that oil prices are likely to remain elevated and provide another headwind for consumers already struggling with slow wage growth and high personal debt.
The S&P 500 energy sector is up 5.4% in the past month as Brent crude has climbed, and up 10% YTD; with the strong correlation between oil shocks and economic recessions, concern is growing that Iraq's chaos could derail the global economy.
But some analysts are beginning to say energy stocks are too rich and could quickly give up gains if the Iraq crisis is defused; Oppenheimer's Fadel Gheit says oil stocks are overpriced and are trading as if crude was going to stay at $110/bbl.
"If they can hold onto Baghdad and the south of Iraq, 3M barrels will continue to flow and it won't be a big deal," said Again Capital analyst John Kilduff, while admitting that "any credible threat to central Baghdad or the oil fields - it's $150 just for starters."
Oil prices are at their most stable since the early 1970s, the review says, as the huge U.S. output increase offsets disruptions to supply from places such as Libya.
Coal was the world's fastest growing fossil fuel, with 3% growth last year driven by developing nations; coal’s share of global energy use reached 30.1%, just below the 32.9% for crude oil, which lost market share for a 14th consecutive year.
Natural gas consumption rose 1.4%, below the 2.6% historical average, to account for 23.7% of world primary energy use; gas demand growth was below average everywhere but North America.
The President promises a plan to help the Iraqi government is days away, but the U.S. response will not involve sending troops. Low morale and commitment have plagued the Iraqi army for some time thanks to political issues, says Obama, and now it's clear the Syrian civil war has spilled over into Iraq.
WTI crude (USO +0.2%) has added a few cents to gains as the President speaks, now at $106.85 per barrel.
July Brent crude hit a nine-month high of $114.69/bbl earlier today, but has since stabilized at ~$113 after the IEA said Iraqi oil supplies are not at immediate risk; most of Iraq’s oil production, export facilities and reserves are in the largely Shia areas in the south, where Islamist rebels enjoy little support.
But such a forecast assumes the conflict doesn't spread; if it does, there is "no doubt" that Brent could reach $125/bbl and beyond, says PVM Oil Associates' David Hufton, who adds that Saudi Arabia has 2M bbl/day of capacity it can turn on fairly quickly but that leaves no spare capacity margin.
Even if the insurgents don't advance to the south, the long-feared fragmentation of Iraq along sectarian lines has been set in motion, which damages the outlook for investment and production growth in Iraq in coming years, a period when Iraqi supply additions are critical to market balances, according to analysts at Energy Aspects.
Although very little of Iraq's crude exports have been affected by the attacks on Mosul and Tikrit, prices are soaring on concern that the violence could spread south to where the vast majority of the country's production is concentrated.
Sunni insurgents overran Tikrit yesterday, threatening the Baiji refinery, which can process 300K bbl/day and supplies Baghdad.
Iraqi Kurdish forces reportedly have taken control of the northern oil city of Kirkuk as Iraq army forces flee.
OPEC has announced that it has not changed its output target despite a higher demand forecast for the rest of the year.
The production ceiling has been set at 30M barrels a day, although the group predicts crude demand of 30.4M barrels in the next half year. The organization answered that rest of demand will be covered by production growth in countries outside the group.
Production is still facing challenges though, with turmoil enveloping Libyan output, Iran sanctions, and political unrest in Iraq.
The country's oil minister claims Iraq’s oil-producing south is secure and oil exports are unaffected, but the main export pipeline to the Mediterranean runs past Mosul and already has been sabotaged more than 50 times this year.
Although the insurgency hasn’t spread to Iraq’s Kurdistan region, the conflict has the potential to nip its oil export industry in the bud.
Global crude supplies are sufficient to allow other nations to cut imports from Iran, though efforts to further curtail such sales were on hold while nuclear talks continue, the WH says in a statement required by Congress regarding the global supply of petroleum products from countries other than Iran.
A larger-than-expected boost in crude oil supplies - up 1.7M barrels last week vs. expectations of just 480K - isn't putting a dent in prices which march a bit higher, the July WTI contract now up 0.7% at $103.40 per barrel.
Gasoline (UGA +0.4%) stockpiles, however, showed a sizable drop of 1.8M barrels vs. expectations for a gain of 280K. Distillates (UHN) fell 200K barrels vs. expectations for a 750K gain.
The energy research group IHS has released a report stating the benefits of U.S. oil exports. Advantages include an added domestic investment of $750 billion, fuel prices lowered by 8 cents a gallon, and an added 394,000 jobs.
Congress enacted a ban on exports after price shocks from the 1973 Arab oil embargo.
With the possibility of Russia cutting its natural gas and crude oil supply to Europe, there is a greater focus on the potential of U.S. energy.
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