Grand Ayatollah Ali al-Sistani, the highest religious authority for Shi’ites, on Friday urged his followers to take up arms against Sunni militants advancing south toward Baghdad, raising the prospect of further violence, Reuters reported.
The surge in both Brent and US crude prices, up about $4 this week, lost some momentum on Friday as the market waited to see if the conflict in Iraq would threaten oil refineries south of Baghdad.
“Right now the market is looking for a comfort zone,” said James Williams, an energy economist at WTRG Economics in London, Arkansas. “Should the militants reach Iraq’s oil patch, then we have a potential for much higher prices.”
Brent futures gained 39 cents to settle at $113.41 per barrel, the highest since 9 September. US crude oil gained 38 cents to settle at $106.91 per barrel, the highest level since 18 September. The spread between the two benchmarks closed at $6.50, according to Reuters.
Brent was set to gain more than 5% this week, the biggest weekly rise since last July, while US crude was on track for its biggest weekly jump since December.
“You want to have a premium as Iraq is more unstable than last week, but with no disruptions, how much can you keep?” said Olivier Jakob at Petromatrix consultancy in Switzerland.
The bulk of Iraq’s current oil exports come from south of Baghdad, still far from the Islamist rebel fighters. Should the militants advance south of the capital, analysts expect them to encounter much greater resistance.
Iraqi exports from the north are considered safe for the moment, analysts said, as the major Kirkuk oil hub is held by Kurdish forces.
US President Barack Obama said on Friday that the United States would not put troops on the ground in Iraq and was reviewing other options to assist the Iraqi government.
Obama said the insurgency so far had not caused major disruptions to oil supplies from Iraq, but that if insurgents took control of refineries, other oil producers in the Middle East would need to help “pick up the slack”.
The International Energy Agency played down fears over the possible loss of oil exports from Iraq in its monthly Oil Market Report, which was released on Friday.
“Concerning as the latest events in Iraq may be, they might not for now, if the conflict does not spread further, put additional Iraqi oil supplies immediately at risk,” the Paris-based agency said.
The IEA said on Friday that Opec would need to produce 1 million barrels per day more oil on average in the second half of 2014 to balance the global market, which will see a steep seasonal spike in demand.
The bullish assessment contrasted with the view of Opec, which on Thursday said extra production would be more than sufficient to meet growing demand.