Oil prices leapt to their highest level in nearly nine months on Thursday, on rising concerns that turmoil in Iraq will disrupt Middle East supplies.
US benchmark West Texas Intermediate for delivery in July jumped $2.13 compared with Wednesday’s close to $106.53 a barrel, the highest level since September 18, 2013.
European benchmark Brent crude for July delivery rallied $3.07 to $113.02 a barrel on London’s Intercontinental Exchange.
Jihadists pushed toward Baghdad on Thursday after capturing a town to the north, as US President Barack Obama said his national security team “is looking at all the options.”
With the militants approaching the capital, forces from Iraq’s autonomous Kurdish region took control of the disputed northern oil hub of Kirkuk to protect it from jihadist attack, officials said.
“Obviously the market is concerned that there could a potential for shutoff of production,” said Andy Lebow, trader and braker at Jefferies Bache.
Lebow said the oil market is already dealing with a major outage to production in Libya.
“No question that should we lose any Iraqi production, that would be serious,” he said.
Iraq boasts the fifth-largest proven crude oil reserves in the world and is the second-largest crude producer in the OPEC cartel after Saudi Arabia, pumping an average of about 3.5 million barrels a day.
On Wednesday, the Organization of Petroleum Exporting Countries, meeting in Vienna, maintained its crude output ceiling where it has been since late 2011, and Saudi Oil Minister Ali al-Naimi expressed satisfaction with a relatively stable oil market.
A note by Eurasia Group said in spite of Iraq’s upheaval, risks in the oil market are “primarily to the downside,” given weak Chinese demand for oil products and signs of a political realignment under way in Libya, which could allow the North African country to return to substantial volumes of crude exports.
The chance the Iraqi strife could significantly “undermine operations within the relatively small geographic footprint where the bulk of Iraq’s current oil production takes place” in southern Iraq is “minimal,” Eurasia Group said.