Oil Up Near $110 on Iraq Supply Disruption Fears

Posted by Michelle Howard June 11, 2014

Iraq city of Mosul falls to militants
OPEC sets 30 mln bpd output target for second half of 2014
U.S. EIA data shows crude stocks down

Oil futures rose toward $110 a barrel on Wednesday as violence in Iraq prompted worries about the supply outlook, while a fall in U.S. gasoline stockpiles pointed to stronger seasonal demand.

Militants from an al Qaeda splinter group who seized Iraq's second-biggest city, Mosul, earlier this week have advanced into the oil refinery town of Baiji, raising concerns about oil supply interruptions should other parts of the country fall.

U.S. crude, meanwhile, found slight support from a weekly government report showing a fall in crude oil and gasoline stocks despite high production.

"In the context of the risks to Baghdad, then U.S. oil production starts to look downright timely, otherwise oil prices could go much higher," said Richard Hastings, macro strategist at Global Hunter Securities.

Brent futures were up 34 cents at $109.86 a barrel at 12:31 p.m. EDT (1631 GMT), having earlier hit a high of $110.25.

U.S. oil rose 7 cents to $104.42 a barrel after hitting $104.81 earlier. It rose to an intraday high of $105.06 on Tuesday, inching close to the peak for the year of $105.22 that was touched in early March.

Key resistance levels capped gains for both U.S. and Brent crudes, $105 a barrel for U.S. and $110 for Brent, traders said.

Iraq Oil Minister Abdul Kareem Luaibi said key southern oilfield export facilities were "very, very safe", with shipments running at around 2.6 million barrels per day (bpd).

Although the fighting is not close to oil-producing areas, it has prompted fears that the situation could deteriorate further and hit production.

"It warrants support of the oil price. We already have Libya out, Iran's exports are low, and there is no prospect of an immediate return for either of them," said Bjarne Schieldrop, an analyst at SEB in Oslo.

Libya is aiming for an oil output target of 800,000-900,000 bpd if its output is restored soon, the country's oil minister, Omar Shakmak, said, but protests have lowered oil exports from Libyan ports to nearly zero.

In the United States, crude inventories fell 2.6 million barrels in the week ended June 6, data from the U.S. government's Energy Information Administration showed on Wednesday.

The fall in crude oil stockpiles, which exceeded forecasts for a 1.9-million-barrel drawdown from analysts polled by Reuters, was accompanied by a drop in refinery utilization rates and slow imports.

OPEC, which pumps more than a third of the world's oil, agreed on Wednesday to renew for the second half of 2014 its oil production ceiling of 30 million barrels a day in a widely anticipated decision.

Oil market supply and demand are in good order and prices are fair, Saudi Oil Minister Ali al-Naimi said before the meeting.

(By Lorenzo Ligato, Additional reporting by Simon Falush in London and Manash Goswami in Singapore; Editing by Jason Neely, David Evans, Pravin Char and Peter Galloway)