London (AFP) – Oil prices soared Thursday to a new nine-month high point on escalating violence in Iraq, as militants attacked the major crude producer’s biggest refinery and seized more territory.
Brent crude for August delivery rallied as high as $114.80 per barrel, reaching a level last seen in September 2013. It later stood at $114.50, up 24 cents from Wednesday’s close.
U.S. benchmark West Texas Intermediate for July delivery added 40 cents to $106.37 a barrel.
“Brent crude has strengthened today, supported by the ongoing advance of the Islamist militant insurgency in Iraq,” said Inenco analyst Dorian Lucas.
Iraqi forces regained full control on Thursday of the country’s largest oil refinery after heavy fighting with Sunni militants attempting to seize it, officials said.
“The security forces are in full control of the Baiji refinery,” Lieutenant General Qassem Atta, Prime Minister Nuri al-Maliki’s security spokesman, said in televised remarks.
Top U.S. officials warned Iraq’s leader against “sectarian” policies as President Barack Obama weighed calls on Thursday for air strikes on Sunni insurgents bearing down on Baghdad.
The sharp criticism of al-Maliki came as he scrambled to beat off a militant onslaught that has seen an entire province and parts of three others fall out of government control in an offensive that could threaten the country’s very existence.
The swift advance of fighters led by the Islamic State of Iraq and the Levant (ISIL) has sparked international alarm and the United Nations has warned that the crisis was life-threatening for Iraq.
“The situation in Iraq will be watched closely by anxious investors and any material disruption could see (Brent) contracts extend above $115 per barrel, a level last reached in early September last year,” added Sucden analyst Kash Kamal in London.
Most of Iraq’s oil infrastructure is in the far south of the country, which has so far not been affected by the now nine-day insurgency.
Baghdad has called for U.S. air strikes as the lightning offensive rapidly bears down on the capital.
The crisis has rocked the global oil market because Iraq is the second-biggest producer within the 12-nation Organization of Petroleum Exporting Countries (OPEC).
In the longer term — even if the southern oilfields remain unaffected — the security situation could scare off investors who are needed to pump sorely-needed capital into the Iraqi energy sector, analysts say.
The world needs oil from Iraq, which is expected to contribute 60 percent of the increase in global production foreseen in the next five years, according to the International Energy Agency.
Iraq has more than 11 percent of the world’s proven resources. It currently produces 3.4 million barrels a day.
It is aiming for daily production of 8.4 million barrels a day after 2018, Iraqi oil minister Abdelkarim al-Luaybi told an OPEC meeting in Vienna last week.
“The newsflow out of Iraq has the oil market on edge for good reason as the world would struggle to replace the lost oil volumes if Iraq were to go the way of Libya,” added Citi analyst Seth Kleinman.
“But the current turmoil could result in more rather than less oil coming out of Iraq in the near and medium term through accelerating exports from the Kurdish region.”
Iraq’s automonous Kurdistan region wants to hike oil exports to 400,000 barrels per day by the end of 2014, from 125,000 bpd currently, despite ongoing violence and objections from central government.
Baghdad insists however that it has the sole right to export Iraqi crude.
Traders meanwhile set aside news of a mixed inventory report in top oil consumer the United States.
The U.S. Energy Information Administration’s weekly inventory report showed commercial crude stocks in the world’s biggest oil consumer fell by 600,000 barrels in the week to June 13.
This was less than the 1.1 million drop on average projected by analysts surveyed by The Wall Street Journal.
The report also showed a bigger-than-expected increase in U.S. gasoline supplies.
AFP Photo/Stan Honda