18 June 2014, News Wires – Brent crude held above $113 per barrel on Wednesday as heavy fighting in Iraq shut the country’s biggest refinery and led to the withdrawal of staff by foreign oil firms, stoking worries about exports from the key oil producer.
Some oil companies are pulling foreign staff from Iraq, fearing Islamic militants from the north could strike at major oilfields concentrated in the south despite moves by the Baghdad government to tighten security.
“Exports haven’t been affected yet, so the price gain we’ve seen so far is only on speculation that things might deteriorate further and instability will spread to the south of Iraq,” OptionsXpress markets analyst Ben Le Brun told Reuters.
“But as soon as we hear about production affected, then we will start to see the price move up more dramatically. But it’s very hard to put a figure on this,” Le Brun said. “In a worst case scenario, Brent could go above $120 at a minimum.”
Brent lost $0.34 cents to $113.11 per barrel by Wednesday morning, after settling $0.51 cents higher.
US crude gained $0.09 cents to $106.45 per barrel after it ended $0.54 cents lower.
Worries about disruption to Iraq’s supply drove up both benchmarks by more than 4% last week, the biggest weekly jump since July for Brent and since December for US crude.
Iraqi officials say the southern regions that produce some 90% of the country’s oil are completely safe from the Islamic State of Iraq and the Levant, which has seized much of the north in a week as Baghdad’s forces there collapsed.
But the International Energy Agency (IEA) said that Iraq’s target to hit 4 million barrels per day of oil output by the end of the year looks increasingly at risk, just as demand is picking up due to a stronger global economy.
“Within OPEC, Iraq remains the main source of most of the expected capacity growth, but this expansion looks increasingly at risk,” IEA executive director Maria van der Hoeven said.
US crude was supported by data from industry group American Petroleum Institute (API) showing crude stocks fell by 5.7 million barrels last week to 378.2 million, compared with analysts’ expectations for a drop of 650,000 barrels.
Crude stocks at the Cushing, Oklahoma, delivery hub rose by 255,000 barrels, API said.
The US Department of Energy’s Energy Information Administration is due to release its closely-watched data at Wednesday morning.
Iran and six world powers re-launched talks on Tuesday to rescue prospects for a deal on Tehran’s nuclear activity by a July deadline.
Britain said on Tuesday it would re-open its embassy in Iran “within months,” after a hiatus of more than two and a half years, a diplomatic breakthrough that underscores the West’s desire to secure Tehran’s help in Iraq and elsewhere in the region.
Oil investors will also keep an eye on the outcome of the Federal Reserve’s policy meeting later in the day.
The Fed is widely expected to shave another $10 billion from its monthly bond purchases, which have supported commodity prices by injecting extra liquidity.