Oil Prices Will Hike After Mosul Falls

Oil prices are set to hike in the next few days with the growing fear that fighting in the northern city of Mosul will spread southwards in Iraq. The country is clearly in line for a greater split between the north and the south, but this time there will be little or no intervention from outside of the country, leading to the belief that oil prices in the world will be affected. The US has stated today that it will support a strong and coordinated response to aggression, however.

After 4 days of intense fighting Iraq’s northern city of Mosul has fallen to the Islamic State and the Levant (ISIS), a break-away group of Al-Qaeda. A state of emergency has been requested by the Prime Minister of Iraq, Nouri al-Maliki at the Iraqi Parliament, with almost half a million people fleeing the city. All of this means that there are worries that there will be another rise in oil prices on the books, in particular if fighting starts spreading towards the south of the country. Sunni militants have already been reported to have been in the oil-refinery town of Baiji, which is some 200 kilometers from Baghdad. Baiji is the largest oil refinery in the country. 1.5 thousand troops have deserted their posts. Of course they have added to the strife by leaving behind weapons and equipment that will be snapped up by the splinter group.

• US crude saw an increase today of 33 cents trading now at $104.68 as London opened. Brent futures increased by 44 cents and reached $109.96 this morning. 
• The high this year so far was touched in March reaching $105.22 for the intraday high in the previous session. 
• US gasoline stocks fell last week and that means that there will be healthy demand coupled with a fall in supply due to the conflict in Iraq. 
• Gasoline stocks in the US fell by over 440, 000 barrels, while expectations were aiming for a gain of 843, 000 barrels according to data from the American Petroleum Institute. 
• US crude production reached the highest level in 26 years last month, with an average of 8.4 million barrels per day.

The Organization of the Petroleum Exporting Countries (OPEC) met today and has decided to leave production at 30 million barrels per day, even with the price of oil at over $100. Iraq is the second largest oil producer in OPEC. 17% of oil reserves are said to be located in the north of the country. The majority, however are located in the south. But, fighting in the region of Mosul has meant that the main oil pipeline running to Turkey has had all repair work stopped on it since the start of March this year. What it does mean is that investors will be wary of plowing money into a country where the conflict has still not been resolved and where Al-Qaeda or splinter groups may be in a position to take over the refineries.

Iraq’s oil minister Abdul Kareem Luaiba has been trying to reassure the world that the south is safe and that there will be no knock-on effect on the price of oil or the supply. He stated: “The midlands and the south are very, very safe. There is no accident in this area, it's only in the north and the government today has started to take very strong actions”. Iraq produces 3.6 million barrels of oil per day today and has plans to increase that by an extra 4 million by the end of 2014. But, Mosul and the growing tensions in the country will have an effect on the markets for certain. Iraq is selling more barrels of oil than ever before and has record levels of exports to the rest of the world.

Some believe that oil prices may now increase to over $120 per barrel. It is hoped that the shortfall in oil production will be picked up by those that are able to do so such as the United Arab Emirates.

Originally posted: Oil Prices Will Hike After Mosul Falls

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