Global oil prices climbed to a new nine-month high Thursday in a seventh straight session of gains after President Barack Obama emphasized he wouldn't send U.S. forces to Iraq.
Brent crude for August delivery, the global benchmark, rose to $115.71 a barrel on ICE Futures Europe, the highest since Sept. 9, 2013, after President Obama's remarks. The contract was recently up $1.06, or 0.9%, at $115.32 a barrel. Light, sweet crude for July delivery was up 44 cents, or 0.4%, at $106.41 a barrel on the New York Mercantile Exchange.
Prices were already higher after workers at Iraq's largest oil refinery said Sunni militants had seized most of the facility. The refinery serves the domestic market. The country's oil production and exports, which are located in the south of Iraq, far from the fighting, haven't been disrupted.
Prices got an extra boost after President Obama said American troops wouldn't be fighting in Iraq again, though he is prepared to take targeted military action in the country. The U.S. is also increasing its support to Iraqi security forces, he said.
"Nobody wants to be short anything in this Brent market," said Peter Donovan, a broker at Liquidity Energy in New York. "The instability just continues."
A further deterioration in Iraq could see prices climb even more, said Michael Hewson, chief market analyst at CMC Markets in London.
Brent could hit $120 a barrel, he said, if the violence spreads south of Baghdad, where Iraq's major oil fields such as Rumaillah, Majnoon and West Qurna are located. They are linked by pipelines to the export terminals at Basra, 340 miles south of Baghdad, from which Iraq ships most of its crude oil into the Persian Gulf and beyond. Iraq exported 2.7 million barrels a day of oil in May, according to the International Energy Agency.
If the rebels succeed in holding the Beiji refinery, they would cut off a vital lifeline of petroleum to the rest of Iraq and further destabilize a country whose U.S.-trained and -supplied military has crumbled following Islamist attacks.
An extended refinery shutdown would mean that "up to 300,000 (barrels a day) of crude oil will now no longer be processed and burnt domestically," which could lead to less oil production in Iraq and higher imports of refined products, JBC Energy said Thursday in a note.
"This would stress an already reasonably tight global balance further," JBC said.
The removal of non-essential oil company staff from Iraq could also have a bearing on production. Malaysian oil company Petronas said Wednesday that it had evacuated 28 of its 166 employees in Iraq to Dubai.