Oil prices fall following US air strike in Iraq

Friday 08 August 2014 18.13
US forces launched their first air strike against Islamic fighters in Iraq's Kurdish region
US forces launched their first air strike against Islamic fighters in Iraq's Kurdish region

Brent crude oil has fallen below $105 a barrel this evening, following US air strikes in Iraq that analysts said might lower the risk of oil supply disruptions from OPEC's second-largest producer.

Brent oil prices rose yesterday on reports that the US was considering air strikes on the Islamic State fighters who have advanced across Iraq's semi-autonomous Kurdish region. 

But the rally halted today after the Pentagon confirmed the military intervention in the north of the country.

US crude prices pared gains and were near unchanged on the day.

"In essence we find US air strikes more bearish than bullish for oil as the act finally draws a line not to cross for IS and re-enforces both the stability in south Iraq and in Kurdistan," said Oliver Jakob, an analyst at Switzerland-based Petromatrix, in a note to traders.

Brent fell 73 cents to $104.71 a barrel by 4.19pm Irish time, off a weekly high of $106.85 hit earlier in the session.

US crude fell 1 cent to $97.33 a barrel, after trading as high as $98.45.

Both benchmarks inverted their upward trajectory in mid-morning trading, as initial alarm about escalating violence in Iraq gave way to the recognition that the US intervention in the Kurdish region could secure oilfields not just in the north but in the more prolific oil producing region further south.

"It definitely sets a precedent that the US is willing to drop bombs on the insurgents," said Mark Anderle, an energy trader at TAC ENERGY in Dallas. "If we can do it in the north, we could do it in the south, if necessary."

Brent spiked above $115 in mid-June on fears that violence in Iraq would disrupt oil supplies. 

But prices have fallen back more than $10 over the past six weeks, as it became clear that Iraqi oil continued to flow steadily from southern fields, over 900km from the escalating violence in the north.

The Kurdistan Regional Government said its oil export pipeline to Turkey was operating normally at a rate of 120,000 barrels per day (bpd).

In Kurdistan, producer Afren suspended output at its small Barda Rash oilfield, but Genel Energy said its Taq Taq and Tawke oilfields continued producing and averaged 230,000 bpd this week.

PVM Oil Associates Managing Director David Hufton said a loss of oil production from the Kurdish region would not affect the market.

Putting further pressure on prices, OPEC's monthly report showed a modest 167,000 bpd increase in production for July and a slight downward revision to 2014 demand, pointing to more comfortable global supplies.