The outbreak of civil war in Iraq has oil traders nervous. Crude oil trading on the NYMEX Thursday gained more than $2 per barrel and has so far continued its climb Friday morning, going as high as $107.68.
Prices are higher on the international market, with Brent crude topping $114 per barrel in London today, the highest level of 2014. So far the price increase hasn't trickled down to gasoline. Today the average price of a gallon of gas in the U.S. is $3.64. A month ago it was $3.62, and a year ago $3.63, according to Gasbuddy.com.
Investors in companies leveraged to Iraqi oil are skittish, but far from panicky. Shares in Iraq-leveraged oil companies have tumbled this week. Gulf Keystone Petroleum is off 14% this week (though having recovered today from massive losses Thursday). Genel Energy (run by former
These sell-offs are surprisingly muted, considering the very real possibility that the world's fourth-largest oil exporter could soon be disintegrated in a civil war that has already drawn in Iran and could bleed into Saudi Arabia. Global oil investors would have little reason not to take refuge in shares of fast-growing U.S.-only producers like
Iraq's oil production has increased markedly from 2.5 million barrels per day in 2010 to hit a recent high of 3.5 million bpd in March. But volumes are off about 300,000 bpd since then, due in part to sabotage on the important Kirkuk-to-Ceyhan pipeline.
Even if attacks by ISIS don't effect Iraq's existing oil production, they certainly will halt new investment in the country. So much for for the dream of Iraq producing 8 million barrels per day by 2020.
It's quite possible that oil markets are underreacting to the violence in Iraq. It's worth keeping in mind that Libya now produces roughly 10% of the 1.3 million bpd that it was doing before the revolution that toppled Muammar Khadafi.
IHS Jane's Intelligence Weekly says in a report today that "energy assets in the north are at severe risk of being raided or targeted, while land cargo transiting across northern Iraq, including traffic bound for Turkey, is at even higher risk of hijacking, or collateral damage from roadside improvised explosive devices or air strikes by Iraqi forces." Much of the oil produced in the Kurdish north is trucked to Turkey.
ISIS spokesmen are reported to be exhorting their Sunni fighters to prepare for battle in Baghdad and the Shiite holy city of Karbala. "March to Baghdad al-Rashid, the Baghdad of the Caliphate. We have a score to settle...Be certain of the victory of Allah as long as you fear Him," said ISIS spokesman Abu Muhammad al-Adnani in a recording.
Grand Ayatollah Ali al-Sistani, the leading Shiite cleric, issued a call to arms during Friday prayers today. According to the BBC, Sheik Abdulmehdi al-Karbalai said in a sermon today: "Citizens who are able to bear arms and fight terrorists, defending their country and their people and their holy places, should volunteer and join the security forces to achieve this holy purpose."
Some see the fall of Baghdad and the splintering of the country as a foregone conclusion. A report on Foxnews.com quoted a U.S. intelligence official saying, "Baghdad is going to be overrun. The Green Zone is going down."
Time to take refuge in American oil fields.
