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Oil prices hit 2014 highs on Iraq supply fears

Crude prices reached nine-month highs in mid-June as political instability and violence in Iraq stoked fears of supply outages

Brent futures reached 2014-highs of $112 per barrel (/b) on 12 June following violence in Iraq and continued outages in Libya. 

On 10 June, hundreds of Sunni fighters from the Islamic State in Iraq and the Levant (ISIS) seized control of Iraq’s second city, Mosul. The group then took control of vast swathes of Iraq’s Nineveh province, as well as the city of Tikrit. 

On 19 June, Brent soared to over $115/b after ISIS seized control of Iraq's biggest oil refinery, the Baiji facility north of Tikrit. The Iraqi government later regained control of the refinery after 24 hours of heavy fighting. However, the situation remains fluid, with heavy fighting continuing as Petroleum Economist went to press. 

Brent fell to around $113.70/b on 24 June following a visit by John Kerry, the US Secretary of State, to Baghdad. Kerry pledged intense and sustained support for a unified Iraq. Kerry added that Iraq’s prime minister, Nour al-Maliki, parliamentary speaker Osama Nujaifi and Shia leader, Ammar Hakim, had committed to forming a new government by 1 July. 

Figure 2: Crude oil prices, 2013-14
Figure 3: Refined products prices, 2013-14

 

The International Energy Agency (IEA) said oil production from the north of the country, which averaged around 250,000 b/d-300,000 b/d between 2013 and early 2014, had been off the market since March due to violence in Anbar province and attacks on the Kirkuk-Ceyhan pipeline. The pipeline links supply from Iraq’s northern fields to global markets via Turkey. The IEA added that China’s crude stockpiling was also adding support to Brent prices as its oil imports drew an additional 1.2m b/d of crude from global markets in April and May alone. This is equivalent to the current losses in Libyan production, compared to pre-civil war levels.

Meanwhile WTI prices were under pressure from healthy stock levels and stable domestic production. Data from the American Petroleum Institute (API) showed US crude stocks were at six-year highs in May. US crude stocks stood at 18.9m barrels in May, up 2% year-on-year. Meanwhile US crude production increased by 15% year-on-year in May, to 8.3m b/d. WTI was trading around $106/b on 24 June, down from around $107.50/b on 20 June.

Figure 1: Dated Brent/North Sea dated crude
Figure 4: Selected refining margins, 2013-14
Figure 5: Natural gas prices, 2013-14
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