Crude
The price of oil climbs towards 114 USD/bbl (a nine-month high) level today in early trading as worries of possible supply disruptions in Iraq continue to mount. Let us recall that Iraq become the second largest OPEC oil producer as it overtook Iran and in 2012 it was the world’s sixth exporter of oil.
Yesterday, anti-government rebels from ISIL (Islamist State in Iraq and the Levant) advanced further to the South and are reported to be seen about an hour’s drive away from Baghdad. Given the worsening security situation and inability of Iraqi government and army to stop them, market worries about possible supply disruptions are mounting, even though the majority of oil production takes place in the South of Iraq. Due to recent development, U.S. president Obama said he did not exclude military strikes against the jihadists.
Yesterday, Iraqi Kurdish forces who took advantage of the departure of the rebels took control of oil hub Kirkuk which - apart from being a home to a small oil refinery - is the origin of the Kirkuk-Ceyhan pipeline which leads oil from Iraq via Turkey to Mediterranean Sea. According to the EIA, the route consists of two parallel pipelines with a capacity of 1.65 million barrels of oil per day. Nevertheless, the EIA also notes that only one of the pipelines is fully operational and theoretical export capacity is thus lower, about 600 thousand barrels per day. However, main press agencies have not reported any disruption in oil flows so far. The main share of Iraqi oil (from southern oilfields) is nevertheless exported via Basrah Oil Terminal which is located on the Persian Gulf.
At the time of writing of this note, the July contract on Brent, which is expiring today, is trading at 113.60 USD/bbl (August contract is seen at 113.16 USD/bbl). The price of oil falls from a nine-month high of 114.69 USD/bbl as the International Energy Agency said that “the latest events in Iraq may not, for now, put additional Iraqi oil supplies immediately at risk”.
Chart of the day:
Brent price surged to a ninemonth high as a security situation in Iraq further deteriorated yesterday.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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