Brent oil rose above $114 a barrel again yesterday as Iraqi forces battled extremists north of Baghdad. The price had breached the $114 barrier last week for the first time in nine months, spiking from about $108 a fortnight ago.
The unrest in Iraq has put growth of Opec crude oil production capacity over the next five years at risk, according to the International Energy Agency, highlighting the importance of the country to the global energy market.
Roughly 60 per cent of the growth in the oil-producing cartel’s production capacity up until 2019 was expected to come from Iraq.
Iraq conflict
“Given Iraq’s precarious political and security situation, the forecast [for Opec output capacity growth of 2.08 million barrels a day for 2013-19] is laden with downside risk,” the watchdog said.
“Even before the violence broke out this was a fairly tightly managed oil market. We were one more supply outage away from sharply higher prices. Although we’re not quite there yet, this is a concern,” said Katherine Spector, a commodities strategist at CIBC World Markets.
India’s government said yesterday it expected oil prices to rise as high as $120 per barrel for several months, driving a hole of at least 200 billion rupees in its budget.
Prime minister Narendra Modi won last month’s general election by a landslide with promises of faster economic growth and new jobs, tapping into voter anger over India’s longest slowdown in a quarter of a century.
Ahead of his maiden budget next month, finance minister Arun Jaitley is grappling with a food inflation scare, and now faces the risk higher oil prices could swell the government’s subsidy bill.
“If oil prices remain high even for three to four months around $120 a barrel, it could have a significant impact on the fiscal deficit and economic growth,” a senior finance ministry official told Reuters on condition of anonymity. – (Reuters/The Financial Times Limited 2014)
